Investors Holding Back On RCM Technologies, Inc. (NASDAQ:RCMT)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider RCM Technologies, Inc. (NASDAQ:RCMT) as an attractive investment with its 14.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, RCM Technologies' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for RCM Technologies

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

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as RCM Technologies' is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 15%. As a result, earnings from three years ago have also fallen 9.8% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 16% during the coming year according to the dual analysts following the company. That's shaping up to be similar to the 15% growth forecast for the broader market.

In light of this, it's peculiar that RCM Technologies' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of RCM Technologies' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - RCM Technologies has 2 warning signs we think you should be aware of.

If you're unsure about the strength of RCM Technologies' 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.