Benign Growth For Huntington Ingalls Industries, Inc. (NYSE:HII) Underpins Its Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Huntington Ingalls Industries, Inc. (NYSE:HII) as an attractive investment with its 10.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Huntington Ingalls Industries 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 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.

See our latest analysis for Huntington Ingalls Industries

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

Is There Any Growth For Huntington Ingalls Industries?

In order to justify its P/E ratio, Huntington Ingalls Industries would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 34%. The latest three year period has also seen a 7.5% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 3.7% per annum during the coming three years according to the ten analysts following the company. That's shaping up to be materially lower than the 11% per annum growth forecast for the broader market.

With this information, we can see why Huntington Ingalls Industries is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Huntington Ingalls Industries maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Huntington Ingalls Industries you should know about.

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.