Resource Development Group Limited (ASX:RDG) Not Doing Enough For Some Investors As Its Shares Slump 29%

The Resource Development Group Limited (ASX:RDG) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

Even after such a large drop in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Resource Development Group as a highly attractive investment with its 3.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Resource Development Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Resource Development Group

Keen to find out how analysts think Resource Development Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Resource Development Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Resource Development Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. The latest three year period has also seen an excellent 4,732% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 56% per annum during the coming three years according to the lone analyst following the company. Meanwhile, the broader market is forecast to expand by 18% per year, which paints a poor picture.

With this information, we are not surprised that Resource Development Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Resource Development Group's P/E?

Shares in Resource Development Group have plummeted and its P/E is now low enough to touch the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Resource Development Group maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 6 warning signs for Resource Development Group (1 shouldn't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Resource Development Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.