Puma Biotechnology, Inc. (NASDAQ:PBYI) Shares Fly 25% But Investors Aren't Buying For Growth

Puma Biotechnology, Inc. (NASDAQ:PBYI) shareholders have had their patience rewarded with a 25% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

In spite of the firm bounce in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Puma Biotechnology as a highly attractive investment with its 4.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

We've discovered 1 warning sign about Puma Biotechnology. View them for free.

Recent times have been advantageous for Puma Biotechnology 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 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 Puma Biotechnology

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

Is There Any Growth For Puma Biotechnology?

Puma Biotechnology's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 140%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 41% each year during the coming three years according to the only analyst following the company. That's not great when the rest of the market is expected to grow by 10% each year.

With this information, we are not surprised that Puma Biotechnology is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Puma Biotechnology's P/E

Shares in Puma Biotechnology are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Puma Biotechnology maintains its low P/E on the weakness of its forecast for sliding earnings, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, you might also be able to find a better stock than Puma Biotechnology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.