Avis Budget Group, Inc. (NASDAQ:CAR) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Avis Budget Group, Inc. (NASDAQ:CAR) as a highly attractive investment with its 3.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Avis Budget Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Avis Budget Group

Want the full picture on analyst estimates for the company? Then our free report on Avis Budget Group will help you uncover what's on the horizon.

Is There Any Growth For Avis Budget Group?

The only time you'd be truly comfortable seeing a P/E as depressed as Avis Budget Group's 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 15%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 36% as estimated by the seven analysts watching the company. Meanwhile, the broader market is forecast to expand by 10%, which paints a poor picture.

With this information, we are not surprised that Avis Budget Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Avis Budget Group's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Avis Budget Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Avis Budget Group (3 are potentially serious!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Avis Budget Group. 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.