Earnings Working Against PROG Holdings, Inc.'s (NYSE:PRG) Share Price Following 34% Dive

Unfortunately for some shareholders, the PROG Holdings, Inc. (NYSE:PRG) share price has dived 34% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 9.6% in the last year.

Since its price has dipped substantially, PROG Holdings' price-to-earnings (or "P/E") ratio of 5.8x might make it look like a strong 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. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

PROG Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

View our latest analysis for PROG Holdings

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

Does Growth Match The Low P/E?

PROG Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. The strong recent performance means it was also able to grow EPS by 31% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings growth is heading into negative territory, declining 0.7% each year over the next three years. That's not great when the rest of the market is expected to grow by 11% per annum.

With this information, we are not surprised that PROG Holdings is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On PROG Holdings' P/E

Shares in PROG Holdings have plummeted and its P/E is now low enough to touch the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that PROG Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 4 warning signs we've spotted with PROG Holdings (including 1 which makes us a bit uncomfortable).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.