Investors Don't See Light At End Of Seven West Media Limited's (ASX:SWM) Tunnel And Push Stock Down 26%

Seven West Media Limited (ASX:SWM) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

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 Seven West Media as a highly attractive investment with its 3.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Seven West Media could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Seven West Media

Want the full picture on analyst estimates for the company? Then our free report on Seven West Media will help you uncover what's on the horizon.

How Is Seven West Media's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 57% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 2.3% each year during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 16% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Seven West Media is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Seven West Media's P/E?

Shares in Seven West Media 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.

As we suspected, our examination of Seven West Media's analyst forecasts revealed that its inferior earnings outlook 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.

It is also worth noting that we have found 4 warning signs for Seven West Media (2 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.