Lacklustre Performance Is Driving Stolt-Nielsen Limited's (OB:SNI) Low P/E

Stolt-Nielsen Limited's (OB:SNI) price-to-earnings (or "P/E") ratio of 5.3x might make it look like a strong buy right now compared to the market in Norway, where around half of the companies have P/E ratios above 11x and even P/E's above 22x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Stolt-Nielsen as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Stolt-Nielsen

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Stolt-Nielsen.

Is There Any Growth For Stolt-Nielsen?

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

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. Pleasingly, EPS has also lifted 655% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 1.4% per annum during the coming three years according to the five analysts following the company. That's not great when the rest of the market is expected to grow by 19% per year.

With this information, we are not surprised that Stolt-Nielsen is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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 Stolt-Nielsen's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

Before you take the next step, you should know about the 3 warning signs for Stolt-Nielsen (1 doesn't sit too well with us!) that we have uncovered.

If you're unsure about the strength of Stolt-Nielsen's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.