Earnings Working Against Gartner, Inc.'s (NYSE:IT) Share Price Following 39% Dive

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The Gartner, Inc. (NYSE:IT) share price has fared very poorly over the last month, falling by a substantial 39%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.

In spite of the heavy fall in price, Gartner may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.8x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been advantageous for Gartner 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 Gartner

Keen to find out how analysts think Gartner's 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 Low P/E?

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

Retrospectively, the last year delivered an exceptional 55% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 83% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 4.7% per year as estimated by the nine analysts watching the company. Meanwhile, the broader market is forecast to expand by 10% per year, which paints a poor picture.

In light of this, it's understandable that Gartner's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Gartner's P/E

Gartner's recently weak share price has pulled its P/E below most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Gartner 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Gartner (1 is a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Gartner's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.