Insufficient Growth At Credit Corp Group Limited (ASX:CCP) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 7.8x Credit Corp Group Limited (ASX:CCP) may be sending very bullish signals at the moment, given that almost half of all companies in Australia have P/E ratios greater than 18x and even P/E's higher than 31x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Credit Corp Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Credit Corp Group

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

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Credit Corp Group's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 126%. The latest three year period has also seen a 10% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.7% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader market is forecast to expand by 15% per year, which paints a poor picture.

In light of this, it's understandable that Credit Corp Group's P/E would sit below the majority of other companies. 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 Credit Corp Group's P/E?

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.

As we suspected, our examination of Credit Corp Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Credit Corp Group (of which 1 is concerning!) you should know about.

If these risks are making you reconsider your opinion on Credit Corp 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.