Stock Analysis

The ONE Group Hospitality, Inc.'s (NASDAQ:STKS) Prospects Need A Boost To Lift Shares

  •  Updated
Source: Shutterstock

With a price-to-earnings (or "P/E") ratio of 2.7x The ONE Group Hospitality, Inc. (NASDAQ:STKS) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for ONE Group Hospitality as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ONE Group Hospitality

NasdaqCM:STKS Price Based on Past Earnings July 8th 2020
NasdaqCM:STKS Price Based on Past Earnings July 8th 2020
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ONE Group Hospitality.

Is There Any Growth For ONE Group Hospitality?

The only time you'd be truly comfortable seeing a P/E as depressed as ONE Group Hospitality's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 287%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to plummet, contracting by 156% during the coming year according to the three analysts following the company. Meanwhile, the broader market is forecast to moderate by 12%, which indicates the company should perform poorly indeed.

In light of this, it's understandable that ONE Group Hospitality's P/E sits below the majority of other companies. Nonetheless, with earnings going quickly in reverse, it's not guaranteed that the P/E has found a floor yet. Even just maintaining these prices could be difficult achieve as the weak outlook is already weighing down the shares heavily.

The Final Word

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of ONE Group Hospitality's analyst forecasts revealed that its even shakier outlook against the market is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Although, we would be concerned whether the company can even maintain this level of performance under these tough market conditions. In the meantime, unless the company's prospects 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 4 warning signs for ONE Group Hospitality (2 are potentially serious!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

When trading ONE Group Hospitality or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.Promoted

Valuation is complex, but we're helping make it simple.

Find out whether ONE Group Hospitality is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis