EPAM Systems, Inc. (NYSE:EPAM) Shares Slammed 28% But Getting In Cheap Might Be Difficult Regardless

To the annoyance of some shareholders, EPAM Systems, Inc. (NYSE:EPAM) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that EPAM Systems' price-to-earnings (or "P/E") ratio of 18.1x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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EPAM Systems 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 moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

View our latest analysis for EPAM Systems

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

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, EPAM Systems would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. However, this wasn't enough as the latest three year period has seen an unpleasant 6.3% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 11% growth per year, the company is positioned for a comparable earnings result.

With this information, we can see why EPAM Systems is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From EPAM Systems' P/E?

Following EPAM Systems' share price tumble, its P/E is now hanging on to the median market P/E. 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.

As we suspected, our examination of EPAM Systems' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for EPAM Systems you should know about.

You might be able to find a better investment than EPAM Systems. 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.