Subdued Growth No Barrier To Nature's Sunshine Products, Inc. (NASDAQ:NATR) With Shares Advancing 36%

Nature's Sunshine Products, Inc. (NASDAQ:NATR) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

After such a large jump in price, Nature's Sunshine Products' price-to-earnings (or "P/E") ratio of 22.9x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E's below 10x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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For instance, Nature's Sunshine Products' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Nature's Sunshine Products

Although there are no analyst estimates available for Nature's Sunshine Products, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Nature's Sunshine Products' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Nature's Sunshine Products' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 8.7% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 51% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the market is similarly expected to grow by 16% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Nature's Sunshine Products' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent earnings trends would weigh down the share price eventually.

The Key Takeaway

Nature's Sunshine Products shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Nature's Sunshine Products currently trades on a higher than expected P/E since its recent three-year growth is only in line with the wider market forecast. Right now we are uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Nature's Sunshine Products you should be aware of.

If these risks are making you reconsider your opinion on Nature's Sunshine Products, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.