Little Excitement Around FMC Corporation's (NYSE:FMC) Earnings As Shares Take 31% Pounding

FMC Corporation (NYSE:FMC) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 29% share price drop.

Even after such a large drop in price, FMC's price-to-earnings (or "P/E") ratio of 11.4x might still 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

FMC hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for FMC

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

Does Growth Match The Low P/E?

FMC'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 72%. The last three years don't look nice either as the company has shrunk EPS by 49% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 5.8% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 11% per year growth forecast for the broader market.

In light of this, it's understandable that FMC's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

The softening of FMC's shares means its P/E is now sitting at a pretty low level. 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 FMC maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Before you take the next step, you should know about the 3 warning signs for FMC (1 is significant!) that we have uncovered.

If these risks are making you reconsider your opinion on FMC, 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.