Albertsons Companies, Inc.'s (NYSE:ACI) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Albertsons Companies, Inc. (NYSE:ACI) as an attractive investment with its 11.2x 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 limited.

Albertsons Companies hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

Check out our latest analysis for Albertsons Companies

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

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 Albertsons Companies' 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 12%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 59% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 4.9% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 10% per annum growth forecast for the broader market.

In light of this, it's understandable that Albertsons Companies' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Albertsons Companies' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Albertsons Companies that you should be aware of.

You might be able to find a better investment than Albertsons Companies. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.