Earnings Working Against Rush Enterprises, Inc.'s (NASDAQ:RUSH.A) Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Rush Enterprises, Inc. (NASDAQ:RUSH.A) as an attractive investment with its 10.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Rush Enterprises has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Rush Enterprises

Keen to find out how analysts think Rush Enterprises' 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 low as Rush Enterprises' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 152% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 18% over the next year. That's not great when the rest of the market is expected to grow by 12%.

In light of this, it's understandable that Rush Enterprises' P/E would sit below the majority of other companies. 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.

The Bottom Line On Rush Enterprises' P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Rush Enterprises 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Rush Enterprises (1 is potentially serious) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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