Johnson Outdoors Inc. (NASDAQ:JOUT) P/E Isn't Throwing Up Surprises
There wouldn't be many who think Johnson Outdoors Inc.'s (NASDAQ:JOUT) price-to-earnings (or "P/E") ratio of 17.1x is worth a mention when the median P/E in the United States is similar at about 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Johnson Outdoors certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
See our latest analysis for Johnson Outdoors
Keen to find out how analysts think Johnson Outdoors' future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The P/E?
Johnson Outdoors' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
If we review the last year of earnings growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 129% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the lone analyst covering the company are not great, suggesting earnings should decline by 5.8% over the next year. Although, this is simply shaping up to be in line with the broader market, which is also set to decline 7.1%.
In light of this, it's understandable that Johnson Outdoors' P/E sits in line with the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Johnson Outdoors' analyst forecasts revealed that its equally shaky outlook against the market is contributing to its P/E. Right now shareholders are comfortable with the P/E as they are confident future earnings won't throw up any further unpleasant surprises. However, we're slightly cautious about the company's ability to resist further pain to its business from the broader market turmoil. For now though, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
You always need to take note of risks, for example - Johnson Outdoors has 1 warning sign we think you should be aware of.
Of course, you might also be able to find a better stock than Johnson Outdoors. 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.
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