It's Down 29% But Miller Industries, Inc. (NYSE:MLR) Could Be Riskier Than It Looks

To the annoyance of some shareholders, Miller Industries, Inc. (NYSE:MLR) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 7.0% over that longer period.

Following the heavy fall in price, Miller Industries' price-to-earnings (or "P/E") ratio of 8.4x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. 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, Miller Industries 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Miller Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Miller Industries.

How Is Miller Industries' Growth Trending?

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

Retrospectively, the last year delivered a decent 8.8% gain to the company's bottom line. The latest three year period has also seen an excellent 290% overall rise in EPS, aided somewhat by its short-term performance. 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 dual analysts covering the company suggest earnings should grow by 12% over the next year. Meanwhile, the rest of the market is forecast to expand by 14%, which is not materially different.

With this information, we find it odd that Miller Industries is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Miller Industries' P/E

Shares in Miller Industries have plummeted and its P/E is now low enough to touch the ground. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Miller Industries currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Miller Industries with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Miller Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.