Little Excitement Around DLH Holdings Corp.'s (NASDAQ:DLHC) Earnings As Shares Take 26% Pounding

DLH Holdings Corp. (NASDAQ:DLHC) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

Following the heavy fall in price, DLH Holdings may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.3x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. 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 DLH Holdings 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.

View our latest analysis for DLH Holdings

Want the full picture on analyst estimates for the company? Then our free report on DLH Holdings will help you uncover what's on the horizon.

How Is DLH Holdings' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 200% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 65% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 129% during the coming year according to the only analyst following the company. With the market predicted to deliver 15% growth , that's a disappointing outcome.

With this information, we are not surprised that DLH Holdings is trading at a P/E lower than the market. 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.

What We Can Learn From DLH Holdings' P/E?

DLH Holdings' recently weak share price has pulled its P/E below most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that DLH Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for DLH Holdings (2 are significant!) that you need to be mindful of.

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.