Investors Give Acadia Healthcare Company, Inc. (NASDAQ:ACHC) Shares A 25% Hiding

Acadia Healthcare Company, Inc. (NASDAQ:ACHC) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Since its price has dipped substantially, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Acadia Healthcare Company as an attractive investment with its 15.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, Acadia Healthcare Company's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Acadia Healthcare Company

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

How Is Acadia Healthcare Company's Growth Trending?

Acadia Healthcare Company's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 62%. This means it has also seen a slide in earnings over the longer-term as EPS is down 63% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 19% per annum over the next three years. With the market only predicted to deliver 11% each year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Acadia Healthcare Company is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The softening of Acadia Healthcare Company's shares means its P/E is now sitting at a pretty low level. 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 Acadia Healthcare Company 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 3 warning signs for Acadia Healthcare Company (1 doesn't sit too well with us!) that we have uncovered.

Of course, you might also be able to find a better stock than Acadia Healthcare Company. 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.