Earnings Working Against Playtika Holding Corp.'s (NASDAQ:PLTK) Share Price

Playtika Holding Corp.'s (NASDAQ:PLTK) price-to-earnings (or "P/E") ratio of 11.1x might 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 17x and even P/E's above 32x 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.

Playtika Holding has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Playtika Holding

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Is There Any Growth For Playtika Holding?

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

Retrospectively, the last year delivered a frustrating 6.6% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 165% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 5.4% per annum as estimated by the analysts watching the company. With the market predicted to deliver 11% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Playtika Holding'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 Bottom Line On Playtika Holding's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Playtika Holding 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Playtika Holding, and understanding them should be part of your investment process.

If you're unsure about the strength of Playtika Holding'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.