Navigator Global Investments Limited (ASX:NGI) Surges 25% Yet Its Low P/E Is No Reason For Excitement

Navigator Global Investments Limited (ASX:NGI) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

In spite of the firm bounce in price, Navigator Global Investments may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.7x, since almost half of all companies in Australia have P/E ratios greater than 19x and even P/E's higher than 37x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Navigator Global Investments has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Navigator Global Investments

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Navigator Global Investments.

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

Navigator Global Investments' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 35% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 7.7% each year as estimated by the three analysts watching the company. With the market predicted to deliver 17% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Navigator Global Investments' 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Navigator Global Investments' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Navigator Global Investments 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Navigator Global Investments (at least 1 which can't be ignored), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Navigator Global Investments. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.