Puma Biotechnology, Inc. (NASDAQ:PBYI) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Puma Biotechnology, Inc. (NASDAQ:PBYI) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 90%.

Even after such a large jump in price, Puma Biotechnology's price-to-earnings (or "P/E") ratio of 5.7x might still make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Puma Biotechnology certainly has been doing a good job lately as it's been growing earnings more 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.

View our latest analysis for Puma Biotechnology

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Puma Biotechnology's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 439% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 33% per year during the coming three years according to the sole analyst following the company. That's not great when the rest of the market is expected to grow by 11% per annum.

In light of this, it's understandable that Puma Biotechnology's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Even after such a strong price move, Puma Biotechnology's P/E still trails the rest of the market significantly. 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. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Puma Biotechnology (including 1 which is a bit concerning).

You might be able to find a better investment than Puma Biotechnology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.