The Manitowoc Company, Inc. (NYSE:MTW) Not Doing Enough For Some Investors As Its Shares Slump 26%

The Manitowoc Company, Inc. (NYSE:MTW) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

Following the heavy fall in price, Manitowoc Company may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.7x, since almost half of all companies in the United States have P/E ratios greater than 16x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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With earnings growth that's superior to most other companies of late, Manitowoc Company 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.

View our latest analysis for Manitowoc Company

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

How Is Manitowoc Company's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. The latest three year period has also seen an excellent 404% overall rise in EPS, aided 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 five analysts covering the company suggest earnings growth is heading into negative territory, declining 5.2% each year over the next three years. With the market predicted to deliver 11% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that Manitowoc Company's 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Shares in Manitowoc Company have plummeted and its P/E is now low enough to touch the ground. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Manitowoc Company's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 Manitowoc Company (2 are significant!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.