Investors Aren't Buying The Navigator Company, S.A.'s (ELI:NVG) Earnings

The Navigator Company, S.A.'s (ELI:NVG) price-to-earnings (or "P/E") ratio of 8.2x might make it look like a buy right now compared to the market in Portugal, where around half of the companies have P/E ratios above 12x and even P/E's above 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The recently shrinking earnings for Navigator Company have been in line with the market. One possibility is that the P/E is low because investors think the company's earnings may begin to slide even faster. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.

Check out our latest analysis for Navigator Company

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Navigator Company would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 236% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 8.0% per year as estimated by the five analysts watching the company. Meanwhile, the broader market is forecast to expand by 3.0% per annum, which paints a poor picture.

In light of this, it's understandable that Navigator Company'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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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 Navigator Company's analyst forecasts revealed that its outlook for shrinking earnings 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Navigator Company you should be aware of, and 1 of them is significant.

Of course, you might also be able to find a better stock than Navigator Company. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.