Academy Sports and Outdoors, Inc.'s (NASDAQ:ASO) Share Price Is Matching Sentiment Around Its Earnings

Academy Sports and Outdoors, Inc.'s (NASDAQ:ASO) price-to-earnings (or "P/E") ratio of 7.4x might 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 18x and even P/E's above 32x 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.

While the market has experienced earnings growth lately, Academy Sports and Outdoors' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Academy Sports and Outdoors

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Academy Sports and Outdoors.

How Is Academy Sports and Outdoors' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.6%. The last three years don't look nice either as the company has shrunk EPS by 3.8% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.9% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 11% per year growth forecast for the broader market.

With this information, we can see why Academy Sports and Outdoors is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Academy Sports and Outdoors' 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 Academy Sports and Outdoors' 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Academy Sports and Outdoors with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Academy Sports and Outdoors. 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.