Fewer Investors Than Expected Jumping On World Acceptance Corporation (NASDAQ:WRLD)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider World Acceptance Corporation (NASDAQ:WRLD) as an attractive investment with its 11.8x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, World Acceptance has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you 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 World Acceptance

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

How Is World Acceptance's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 348%. EPS has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 10% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 11%, which is not materially different.

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

What We Can Learn From World Acceptance's P/E?

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.

We've established that World Acceptance currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for World Acceptance that you need to take into consideration.

If these risks are making you reconsider your opinion on World Acceptance, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.