Stock Analysis

Sypris Solutions, Inc.'s (NASDAQ:SYPR) 26% Share Price Plunge Could Signal Some Risk

NasdaqGM:SYPR
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Sypris Solutions, Inc. (NASDAQ:SYPR) shares have had a horrible month, losing 26% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 111%.

In spite of the heavy fall in price, Sypris Solutions may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 50.3x, since almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at Sypris Solutions over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Sypris Solutions

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NasdaqGM:SYPR Price Based on Past Earnings November 19th 2021
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sypris Solutions' earnings, revenue and cash flow.

Is There Enough Growth For Sypris Solutions?

In order to justify its P/E ratio, Sypris Solutions would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Sypris Solutions' P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Sypris Solutions' P/E?

Even after such a strong price drop, Sypris Solutions' P/E still exceeds the rest of the market significantly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Sypris Solutions revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 6 warning signs for Sypris Solutions you should be aware of, and 1 of them is a bit unpleasant.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

Valuation is complex, but we're helping make it simple.

Find out whether Sypris Solutions is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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