Earnings Working Against Hudson Global, Inc.'s (NASDAQ:HSON) Share Price Following 35% Dive

Hudson Global, Inc. (NASDAQ:HSON) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

After such a large drop in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider Hudson Global as a highly attractive investment with its 6.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for Hudson Global 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.

Our analysis indicates that HSON is potentially undervalued!

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Hudson Global would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 274% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 23% over the next year. Meanwhile, the broader market is forecast to expand by 7.3%, which paints a poor picture.

In light of this, it's understandable that Hudson Global'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 Hudson Global have plummeted and its P/E is now low enough to touch the ground. 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 Hudson Global 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. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Hudson Global that you need to be mindful of.

If you're unsure about the strength of Hudson Global's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.