Earnings Working Against Willis Lease Finance Corporation's (NASDAQ:WLFC) Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Willis Lease Finance Corporation (NASDAQ:WLFC) as an attractive investment with its 14x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Willis Lease Finance certainly has been doing a good job lately as it's been growing earnings more 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.

Check out our latest analysis for Willis Lease Finance

Want the full picture on analyst estimates for the company? Then our free report on Willis Lease Finance will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Willis Lease Finance would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 108% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 0.6% per year during the coming three years according to the one analyst following the company. That's not great when the rest of the market is expected to grow by 11% per annum.

In light of this, it's understandable that Willis Lease Finance's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

As we suspected, our examination of Willis Lease Finance's 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. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Willis Lease Finance that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.