Market Cool On Global Payments Inc.'s (NYSE:GPN) Earnings Pushing Shares 28% Lower

Unfortunately for some shareholders, the Global Payments Inc. (NYSE:GPN) share price has dived 28% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

After such a large drop in price, Global Payments' price-to-earnings (or "P/E") ratio of 10.9x 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 17x and even P/E's above 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Global Payments. View them for free.

Recent times have been advantageous for Global Payments 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 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 Global Payments

Want the full picture on analyst estimates for the company? Then our free report on Global Payments will help you uncover what's on the horizon.

Is There Any Growth For Global Payments?

In order to justify its P/E ratio, Global Payments would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 64%. The latest three year period has also seen an excellent 94% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 12% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 10% per annum growth forecast for the broader market.

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

The Key Takeaway

Global Payments' P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Global Payments currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. 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 Global Payments that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.