Benign Growth For Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) Underpins Stock's 25% Plummet

The Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) share price has fared very poorly over the last month, falling by a substantial 25%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.2% over the last twelve months.

Even after such a large drop in price, Great Lakes Dredge & Dock may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.5x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Great Lakes Dredge & Dock as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

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Is There Any Growth For Great Lakes Dredge & Dock?

There's an inherent assumption that a company should underperform the market for P/E ratios like Great Lakes Dredge & Dock's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 308%. The latest three year period has also seen a 13% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 0.4% as estimated by the three analysts watching the company. With the market predicted to deliver 15% growth , that's a disappointing outcome.

With this information, we are not surprised that Great Lakes Dredge & Dock 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Great Lakes Dredge & Dock's recently weak share price has pulled its P/E below most other companies. 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.

We've established that Great Lakes Dredge & Dock 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Great Lakes Dredge & Dock that you should be aware of.

If you're unsure about the strength of Great Lakes Dredge & Dock's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.