Harte Hanks, Inc. (NASDAQ:HHS) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Harte Hanks, Inc. (NASDAQ:HHS) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 141% in the last year.

Although its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may still consider Harte Hanks as an attractive investment with its 9.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Harte Hanks as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Harte Hanks

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

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 69% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings growth is heading into negative territory, declining 18% over the next year. Meanwhile, the broader market is forecast to expand by 8.9%, which paints a poor picture.

With this information, we are not surprised that Harte Hanks is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Harte Hanks' P/E

The latest share price surge wasn't enough to lift Harte Hanks' P/E close 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 Harte Hanks maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Harte Hanks that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.