Why Investors Shouldn't Be Surprised By Apogee Enterprises, Inc.'s (NASDAQ:APOG) Low P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Apogee Enterprises, Inc. (NASDAQ:APOG) as an attractive investment with its 14.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Apogee Enterprises 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.

View our latest analysis for Apogee Enterprises

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Apogee Enterprises' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Still, the latest three year period has seen an excellent 438% overall rise in EPS, in spite of its uninspiring short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 2.1% as estimated by the three analysts watching the company. With the market predicted to deliver 14% growth , that's a disappointing outcome.

With this information, we are not surprised that Apogee Enterprises 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.

What We Can Learn From Apogee Enterprises' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Apogee Enterprises' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Apogee Enterprises that you should be aware of.

Of course, you might also be able to find a better stock than Apogee Enterprises. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com