Benign Growth For The Duckhorn Portfolio, Inc. (NYSE:NAPA) Underpins Its Share Price

The Duckhorn Portfolio, Inc.'s (NYSE:NAPA) price-to-earnings (or "P/E") ratio of 12.8x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 34x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Duckhorn Portfolio as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

View our latest analysis for Duckhorn Portfolio

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

How Is Duckhorn Portfolio's Growth Trending?

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

Retrospectively, the last year delivered a decent 9.5% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 4.3% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 7.0% as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15%, which is noticeably more attractive.

With this information, we can see why Duckhorn Portfolio is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Duckhorn Portfolio's analyst forecasts revealed that its inferior earnings outlook 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. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Duckhorn Portfolio that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.