Improved Earnings Required Before The Greenbrier Companies, Inc. (NYSE:GBX) Stock's 26% Jump Looks Justified

The Greenbrier Companies, Inc. (NYSE:GBX) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 83%.

Although its price has surged higher, Greenbrier Companies' price-to-earnings (or "P/E") ratio of 12.8x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E's above 36x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Greenbrier Companies as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Greenbrier Companies

Keen to find out how analysts think Greenbrier Companies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Greenbrier Companies' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Greenbrier Companies' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 163%. The strong recent performance means it was also able to grow EPS by 415% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 3.4% over the next year. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

In light of this, it's understandable that Greenbrier Companies' 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 Key Takeaway

Despite Greenbrier Companies' shares building up a head of steam, its P/E still lags 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.

As we suspected, our examination of Greenbrier Companies' 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 take the next step, you should know about the 3 warning signs for Greenbrier Companies (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on Greenbrier Companies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.