Nature's Sunshine Products, Inc.'s (NASDAQ:NATR) 28% Share Price Surge Not Quite Adding Up

Nature's Sunshine Products, Inc. (NASDAQ:NATR) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.7% over the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Nature's Sunshine Products' P/E ratio of 18.2x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 20x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Nature's Sunshine Products has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Nature's Sunshine Products

Want the full picture on analyst estimates for the company? Then our free report on Nature's Sunshine Products will help you uncover what's on the horizon.

Is There Some Growth For Nature's Sunshine Products?

The only time you'd be comfortable seeing a P/E like Nature's Sunshine Products' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 115%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 14% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings growth is heading into negative territory, declining 15% over the next year. That's not great when the rest of the market is expected to grow by 15%.

In light of this, it's somewhat alarming that Nature's Sunshine Products' P/E sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On Nature's Sunshine Products' P/E

Its shares have lifted substantially and now Nature's Sunshine Products' P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Nature's Sunshine Products currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Nature's Sunshine Products with six simple checks will allow you to discover any risks that could be an issue.

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.