Lacklustre Performance Is Driving Norwegian Air Shuttle ASA's (OB:NAS) 28% Price Drop

Unfortunately for some shareholders, the Norwegian Air Shuttle ASA (OB:NAS) share price has dived 28% in the last thirty days, prolonging recent pain. The last month has meant the stock is now only up 3.5% during the last year.

Although its price has dipped substantially, given about half the companies in Norway have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Norwegian Air Shuttle as an attractive investment with its 6.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Norwegian Air Shuttle certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Norwegian Air Shuttle

Want the full picture on analyst estimates for the company? Then our free report on Norwegian Air Shuttle will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Norwegian Air Shuttle's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 76% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. 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 3.4% per year during the coming three years according to the six analysts following the company. With the market predicted to deliver 23% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Norwegian Air Shuttle 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.

The Final Word

Norwegian Air Shuttle's recently weak share price has pulled its P/E below most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Norwegian Air Shuttle'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Norwegian Air Shuttle.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com