Little Excitement Around Eagle Bulk Shipping Inc.'s (NASDAQ:EGLE) Earnings
Eagle Bulk Shipping Inc.'s (NASDAQ:EGLE) price-to-earnings (or "P/E") ratio of 2.2x 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 15x and even P/E's above 28x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Eagle Bulk Shipping certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Eagle Bulk Shipping
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Eagle Bulk Shipping.
How Is Eagle Bulk Shipping's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Eagle Bulk Shipping's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 191%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 51% as estimated by the six analysts watching the company. With the market predicted to deliver 8.2% growth , that's a disappointing outcome.
With this information, we are not surprised that Eagle Bulk Shipping is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Bottom Line On Eagle Bulk Shipping's P/E
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.
As we suspected, our examination of Eagle Bulk Shipping's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 2 warning signs for Eagle Bulk Shipping (1 shouldn't be ignored!) that you need to take into consideration.
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).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
