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Investors Holding Back On Overseas Shipholding Group, Inc. (NYSE:OSG)

Simply Wall St

With a price-to-earnings (or "P/E") ratio of 7x Overseas Shipholding Group, Inc. (NYSE:OSG) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 35x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Overseas Shipholding Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Overseas Shipholding Group

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

Is There Any Growth For Overseas Shipholding Group?

In order to justify its P/E ratio, Overseas Shipholding Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 134% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 185% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to decline by 7.1% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Overseas Shipholding Group is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Overseas Shipholding Group revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Overseas Shipholding Group you should be aware of, and 1 of them shouldn't be ignored.

Of course, you might also be able to find a better stock than Overseas Shipholding Group. 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.

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.