There Is A Reason The Interpublic Group of Companies, Inc.'s (NYSE:IPG) Price Is Undemanding

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider The Interpublic Group of Companies, Inc. (NYSE:IPG) as an attractive investment with its 11x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Interpublic Group of Companies as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

See our latest analysis for Interpublic Group of Companies

Want the full picture on analyst estimates for the company? Then our free report on Interpublic Group of Companies will help you uncover what's on the horizon.

Is There Any Growth For Interpublic Group of Companies?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. The strong recent performance means it was also able to grow EPS by 156% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 0.9% per year as estimated by the eight analysts watching the company. With the market predicted to deliver 10.0% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Interpublic Group of Companies' 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.

What We Can Learn From Interpublic Group of Companies' 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.

As we suspected, our examination of Interpublic Group of Companies' 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. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Interpublic Group of Companies with six simple checks on some of these key factors.

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 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.