TETRA Technologies, Inc.'s (NYSE:TTI) 26% Dip In Price Shows Sentiment Is Matching Earnings

TETRA Technologies, Inc. (NYSE:TTI) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

Even after such a large drop in price, TETRA Technologies' price-to-earnings (or "P/E") ratio of 3.8x might still 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 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, TETRA Technologies has been doing relatively well. 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 TETRA Technologies

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

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as TETRA Technologies' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 340% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth is heading into negative territory, declining 1.4% per annum over the next three years. That's not great when the rest of the market is expected to grow by 11% per annum.

In light of this, it's understandable that TETRA Technologies' 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.

The Key Takeaway

TETRA Technologies' P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of TETRA Technologies' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for TETRA Technologies that you need to be mindful of.

Of course, you might also be able to find a better stock than TETRA Technologies. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.