Take Care Before Jumping Onto United Parks & Resorts Inc. (NYSE:PRKS) Even Though It's 34% Cheaper

United Parks & Resorts Inc. (NYSE:PRKS) shareholders that were waiting for something to happen have been dealt a blow with a 34% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Following the heavy fall in price, United Parks & Resorts' price-to-earnings (or "P/E") ratio of 10.7x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 33x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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United Parks & Resorts 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 United Parks & Resorts

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. As a result, earnings from three years ago have also fallen 24% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 36% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader market.

In light of this, it's peculiar that United Parks & Resorts' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The softening of United Parks & Resorts' shares means its P/E is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that United Parks & Resorts currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for United Parks & Resorts you should know about.

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 low P/E.

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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.