Lifeway Foods, Inc. (NASDAQ:LWAY) Stocks Shoot Up 39% But Its P/E Still Looks Reasonable

Those holding Lifeway Foods, Inc. (NASDAQ:LWAY) shares would be relieved that the share price has rebounded 39% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think Lifeway Foods' price-to-earnings (or "P/E") ratio of 18.9x is worth a mention when the median P/E in the United States is similar at about 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Lifeway Foods certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.

Check out our latest analysis for Lifeway Foods

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lifeway Foods.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Lifeway Foods' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 407% last year. The strong recent performance means it was also able to grow EPS by 213% in total over the last three years. 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 16% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to expand by 15%, which is not materially different.

In light of this, it's understandable that Lifeway Foods' P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Lifeway Foods' P/E?

Lifeway Foods' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Lifeway Foods maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Lifeway Foods is showing 2 warning signs in our investment analysis, and 1 of those is significant.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.