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Fewer Investors Than Expected Jumping On Rush Enterprises, Inc. (NASDAQ:RUSH.B)

Simply Wall St
·3 mins read

Rush Enterprises, Inc.'s (NASDAQ:RUSH.B) price-to-earnings (or "P/E") ratio of 14.4x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 35x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Rush Enterprises' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you 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 Rush Enterprises

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Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Rush Enterprises will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. Still, the latest three year period has seen an excellent 76% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to decline by 9.0% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's quite peculiar that Rush Enterprises' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Key Takeaway

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.

We've established that Rush Enterprises currently trades on a much lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. We think potential risks might be placing significant pressure on the P/E ratio and share price. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Rush Enterprises you should know about.

If you're unsure about the strength of Rush Enterprises' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.