Take Care Before Diving Into The Deep End On Nexstar Media Group, Inc. (NASDAQ:NXST)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Nexstar Media Group, Inc. (NASDAQ:NXST) as an attractive investment with its 10.2x 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.

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Recent times have been advantageous for Nexstar Media Group 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.

See our latest analysis for Nexstar Media Group

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Nexstar Media Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 53% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 10% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 9.5% per annum as estimated by the nine analysts watching the company. With the market predicted to deliver 11% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Nexstar Media Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

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.

Our examination of Nexstar Media Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Nexstar Media Group, and understanding should be part of your investment process.

If you're unsure about the strength of Nexstar Media Group'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.