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The Skillful Craftsman Education Technology Limited (NASDAQ:EDTK) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 69% share price decline.
Since its price has dipped substantially, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Skillful Craftsman Education Technology as a highly attractive investment with its 4.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
As an illustration, earnings have deteriorated at Skillful Craftsman Education Technology over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Although there are no analyst estimates available for Skillful Craftsman Education Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Skillful Craftsman Education Technology's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Skillful Craftsman Education Technology's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 53% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's an unpleasant look.
In light of this, it's understandable that Skillful Craftsman Education Technology'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. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.
The Key Takeaway
Skillful Craftsman Education Technology's P/E looks about as weak as its stock price lately. 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 Skillful Craftsman Education Technology revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Before you settle on your opinion, we've discovered 4 warning signs for Skillful Craftsman Education Technology (1 makes us a bit uncomfortable!) that you should be aware of.
You might be able to find a better investment than Skillful Craftsman Education Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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