3M Company's (NYSE:MMM) Shares Lagging The Market But So Is The Business
With a price-to-earnings (or "P/E") ratio of 10.5x 3M Company (NYSE:MMM) 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 15x and even P/E's higher than 28x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Recent earnings growth for 3M has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.
Check out our latest analysis for 3M
If you'd like to see what analysts are forecasting going forward, you should check out our free report on 3M.
Is There Any Growth For 3M?
The only time you'd be truly comfortable seeing a P/E as low as 3M's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 39% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 1.1% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 9.4% growth per year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that 3M's 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.
The Final Word
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of 3M's 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. It's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for 3M that you should be aware of.
Of course, you might also be able to find a better stock than 3M. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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