Market Might Still Lack Some Conviction On Regional Management Corp. (NYSE:RM) Even After 27% Share Price Boost

Regional Management Corp. (NYSE:RM) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Even after such a large jump in price, Regional Management may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.4x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been advantageous for Regional Management as its earnings have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Regional Management

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How Is Regional Management's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 59% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 56% each year during the coming three years according to the six analysts following the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Regional Management's 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.

What We Can Learn From Regional Management's P/E?

Regional Management's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Regional Management 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

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

If you're unsure about the strength of Regional Management's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.