Why Investors Shouldn't Be Surprised By Shutterstock, Inc.'s (NYSE:SSTK) Low P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Shutterstock, Inc. (NYSE:SSTK) as an attractive investment with its 14.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Shutterstock certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Shutterstock

Keen to find out how analysts think Shutterstock's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shutterstock's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shutterstock's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 55% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 4.6% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% each year, which is noticeably more attractive.

In light of this, it's understandable that Shutterstock'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 Shutterstock's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shutterstock maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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.

It is also worth noting that we have found 1 warning sign for Shutterstock that you need to take into consideration.

If you're unsure about the strength of Shutterstock'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.