Market Might Still Lack Some Conviction On Signet Jewelers Limited (NYSE:SIG) Even After 28% Share Price Boost

Signet Jewelers Limited (NYSE:SIG) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 54%.

Although its price has surged higher, Signet Jewelers' price-to-earnings (or "P/E") ratio of 11x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 33x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Signet Jewelers 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. 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.

Check out our latest analysis for Signet Jewelers

Keen to find out how analysts think Signet Jewelers' 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?

Signet Jewelers' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 13% over the next year. With the market only predicted to deliver 10%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Signet Jewelers' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Signet Jewelers' P/E?

Signet Jewelers' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Signet Jewelers currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Signet Jewelers that we have uncovered.

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.