Stock Analysis

High Liner Foods Incorporated's (TSE:HLF) Subdued P/E Might Signal An Opportunity

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With a median price-to-earnings (or "P/E") ratio of close to 13x in Canada, you could be forgiven for feeling indifferent about High Liner Foods Incorporated's (TSE:HLF) P/E ratio of 13.9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

While the market has experienced earnings growth lately, High Liner Foods' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for High Liner Foods

TSX:HLF Price Based on Past Earnings July 8th 2020
TSX:HLF Price Based on Past Earnings July 8th 2020
Want the full picture on analyst estimates for the company? Then our free report on High Liner Foods will help you uncover what's on the horizon.

Is There Some Growth For High Liner Foods?

There's an inherent assumption that a company should be matching the market for P/E ratios like High Liner Foods' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 54%. This means it has also seen a slide in earnings over the longer-term as EPS is down 69% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth will be highly resilient over the next year growing by 43%. With the rest of the market predicted to shrink by 9.2%, that would be a fantastic result.

With this information, we find it odd that High Liner Foods is trading at a fairly similar P/E to the market. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader market.

What We Can Learn From High Liner Foods' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of High Liner Foods' analyst forecasts revealed that its superior earnings outlook against a shaky market isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader market turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 5 warning signs for High Liner Foods (1 is a bit concerning!) that you need to take into consideration.

Of course, you might also be able to find a better stock than High Liner Foods. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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