The Market Doesn't Like What It Sees From Sibanye Stillwater Limited's (JSE:SSW) Earnings Yet

When close to half the companies in South Africa have price-to-earnings ratios (or "P/E's") above 9x, you may consider Sibanye Stillwater Limited (JSE:SSW) as an attractive investment with its 6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Sibanye Stillwater 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.

Our analysis indicates that SSW is potentially undervalued!

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sibanye Stillwater.

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 Sibanye Stillwater's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 9.1% each year during the coming three years according to the ten analysts following the company. Meanwhile, the broader market is forecast to expand by 7.0% per annum, which paints a poor picture.

In light of this, it's understandable that Sibanye Stillwater's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Sibanye Stillwater's 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.

We've established that Sibanye Stillwater 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Sibanye Stillwater you should be aware of, and 1 of them is significant.

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 P/E ratio below 20x).

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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.