RCM Technologies, Inc.'s (NASDAQ:RCMT) Shares Leap 35% Yet They're Still Not Telling The Full Story

RCM Technologies, Inc. (NASDAQ:RCMT) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, RCM Technologies may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.8x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. 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.

How Is RCM Technologies' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 76% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 16% over the next year. With the market only predicted to deliver 13%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that RCM Technologies' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On RCM Technologies' P/E

Despite RCM Technologies' shares building up a head of steam, its P/E still lags most other companies. 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 superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for RCM Technologies that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.