Lacklustre Performance Is Driving Queen's Road Capital Investment Ltd.'s (TSE:QRC) Low P/E

Queen's Road Capital Investment Ltd.'s (TSE:QRC) price-to-earnings (or "P/E") ratio of 4.9x might make it look like a strong buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 16x and even P/E's above 32x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's exceedingly strong of late, Queen's Road Capital Investment has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Queen's Road Capital Investment

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Queen's Road Capital Investment will help you shine a light on its historical performance.

How Is Queen's Road Capital Investment's Growth Trending?

In order to justify its P/E ratio, Queen's Road Capital Investment would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 69% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 23% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

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

The Bottom Line On Queen's Road Capital Investment's 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.

As we suspected, our examination of Queen's Road Capital Investment revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Queen's Road Capital Investment you should be aware of.

If these risks are making you reconsider your opinion on Queen's Road Capital Investment, 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.