Earnings Working Against Criteo S.A.'s (NASDAQ:CRTO) Share Price Following 27% Dive

Unfortunately for some shareholders, the Criteo S.A. (NASDAQ:CRTO) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

In spite of the heavy fall in price, Criteo may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.5x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's superior to most other companies of late, Criteo has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you 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 Criteo

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

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

The only time you'd be truly comfortable seeing a P/E as low as Criteo's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 102%. As a result, it also grew EPS by 23% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 0.5% each year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 10% per annum, which is noticeably more attractive.

With this information, we can see why Criteo is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Criteo's P/E

Criteo's recently weak share price has pulled its P/E below most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Criteo's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

If you're unsure about the strength of Criteo's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.