Little Excitement Around Aptiv PLC's (NYSE:APTV) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Aptiv PLC (NYSE:APTV) as a highly attractive investment with its 7.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Aptiv certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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 Aptiv

Keen to find out how analysts think Aptiv's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 381% gain to the company's bottom line. The latest three year period has also seen an excellent 515% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 9.4% per year as estimated by the analysts watching the company. That's not great when the rest of the market is expected to grow by 10% per annum.

With this information, we are not surprised that Aptiv is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Aptiv's P/E?

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 Aptiv maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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 need to take note of risks, for example - Aptiv has 3 warning signs (and 1 which can't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on Aptiv, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.