Strattec Security Corporation's (NASDAQ:STRT) Shares Leap 64% Yet They're Still Not Telling The Full Story

Strattec Security Corporation (NASDAQ:STRT) shareholders would be excited to see that the share price has had a great month, posting a 64% gain and recovering from prior weakness. The last month tops off a massive increase of 106% in the last year.

Even after such a large jump in price, Strattec Security's price-to-earnings (or "P/E") ratio of 10.7x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 32x 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.

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Recent times have been advantageous for Strattec Security 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.

Check out our latest analysis for Strattec Security

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

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 400% last year. The latest three year period has also seen an excellent 99% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 9.3% per year as estimated by the dual analysts watching the company. That's shaping up to be similar to the 10% each year growth forecast for the broader market.

In light of this, it's peculiar that Strattec Security's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Strattec Security's P/E

Despite Strattec Security's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Strattec Security currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Strattec Security that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.