Warrior Met Coal, Inc.'s (NYSE:HCC) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Warrior Met Coal, Inc. (NYSE:HCC) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 75% in the last year.

Even after such a large jump in price, Warrior Met Coal may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.5x, since almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times haven't been advantageous for Warrior Met Coal as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Warrior Met Coal

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

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Warrior Met Coal would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 9.8% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 10% each year, which paints a poor picture.

In light of this, it's understandable that Warrior Met Coal's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Warrior Met Coal's P/E

Shares in Warrior Met Coal are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

We've established that Warrior Met Coal maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Warrior Met Coal that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.