The Market Doesn't Like What It Sees From Universal Logistics Holdings, Inc.'s (NASDAQ:ULH) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 9.4x Universal Logistics Holdings, Inc. (NASDAQ:ULH) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Universal Logistics Holdings as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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How Is Universal Logistics Holdings' Growth Trending?

In order to justify its P/E ratio, Universal Logistics Holdings would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 98% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 3.3% during the coming year according to the lone analyst following the company. That's shaping up to be materially lower than the 11% growth forecast for the broader market.

In light of this, it's understandable that Universal Logistics Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Universal Logistics Holdings' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Universal Logistics Holdings' analyst forecasts revealed that its inferior earnings outlook 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Universal Logistics Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Universal Logistics Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.