With a price-to-earnings (or "P/E") ratio of 7.6x Lee Enterprises, Incorporated (NYSE:LEE) 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
As an illustration, earnings have deteriorated at Lee Enterprises over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lee Enterprises will help you shine a light on its historical performance.
How Is Lee Enterprises' Growth Trending?
Lee Enterprises' 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.
Retrospectively, the last year delivered a frustrating 60% 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 73% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Comparing that to the market, which is predicted to shrink 4.6% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised earnings results.
In light of this, it's understandable that Lee Enterprises' P/E sits below the majority of other companies. However, when earnings shrink rapidly P/E often shrinks too, which could set up shareholders for future disappointment regardless. Even just maintaining these prices will be difficult to achieve as recent earnings trends are already weighing down the shares heavily.
What We Can Learn From Lee Enterprises' P/E?
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.
We've established that Lee Enterprises maintains its low P/E on the weakness of its recentthree-year earnings being even worse than the forecasts for a struggling market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Although, we would be concerned whether the company can even maintain its medium-term level of performance under these tough market conditions. For now though, it's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Lee Enterprises (2 are a bit unpleasant) 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.
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