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Investors Aren't Buying United Airlines Holdings, Inc.'s (NASDAQ:UAL) Earnings

Simply Wall St

United Airlines Holdings, Inc.'s (NASDAQ:UAL) price-to-earnings (or "P/E") ratio of 8.3x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 34x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

United Airlines Holdings 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for United Airlines Holdings

Where Does United Airlines Holdings' P/E Sit Within Its Industry?

It's plausible that United Airlines Holdings' particularly low P/E ratio could be a result of tendencies within its own industry. The image below shows that the Airlines industry as a whole also has a P/E ratio significantly lower than the market. So it appears the company's ratio could be influenced considerably by these industry numbers currently. Ordinarily, the majority of companies' P/E's would be compressed firmly by the general conditions within the Airlines industry. Still, the strength of the company's earnings will most likely determine where its P/E shall sit.


Want the full picture on analyst estimates for the company? Then our free report on United Airlines Holdings will help you uncover what's on the horizon.

Is There Any Growth For United Airlines Holdings?

United Airlines Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 52%. This means it has also seen a slide in earnings over the longer-term as EPS is down 38% 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.

Looking ahead now, EPS is anticipated to climb by 3.0% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 10.0% per year, which is noticeably more attractive.

In light of this, it's understandable that United Airlines 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 United Airlines Holdings' P/E?

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 United Airlines Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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 5 warning signs for United Airlines Holdings you should be aware of.

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).

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.