Investors Don't See Light At End Of AerCap Holdings N.V.'s (NYSE:AER) Tunnel

With a price-to-earnings (or "P/E") ratio of 6.9x AerCap Holdings N.V. (NYSE:AER) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 35x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, AerCap Holdings has been doing relatively well. 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 AerCap Holdings

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How Is AerCap Holdings' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 87% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 26% during the coming year according to the eight analysts following the company. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

With this information, we are not surprised that AerCap Holdings 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From AerCap Holdings' 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.

We've established that AerCap Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

It is also worth noting that we have found 3 warning signs for AerCap Holdings (2 are potentially serious!) that you need to take into consideration.

If you're unsure about the strength of AerCap Holdings' 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.