Lacklustre Performance Is Driving New Fortress Energy Inc.'s (NASDAQ:NFE) 27% Price Drop

To the annoyance of some shareholders, New Fortress Energy Inc. (NASDAQ:NFE) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 69% loss during that time.

Following the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider New Fortress Energy as a highly attractive investment with its 8.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

New Fortress Energy has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for New Fortress Energy

Keen to find out how analysts think New Fortress Energy's future stacks up against the industry? In that case, our free report is a great place to start.

How Is New Fortress Energy's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like New Fortress Energy's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 34% during the coming year according to the six analysts following the company. That's not great when the rest of the market is expected to grow by 15%.

In light of this, it's understandable that New Fortress Energy's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From New Fortress Energy's P/E?

New Fortress Energy's P/E looks about as weak as its stock price lately. 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 New Fortress Energy 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.

You need to take note of risks, for example - New Fortress Energy has 5 warning signs (and 2 which are a bit concerning) we think you should know about.

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.