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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Laureate Education, Inc. (NASDAQ:LAUR) as an attractive investment with its 9.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Recent times have been pleasing for Laureate Education as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Laureate Education.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Laureate Education's is when the company's growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 153%. However, this wasn't enough as the latest three year period has seen a very unpleasant 47% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 7.0% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 11% per annum, which paints a poor picture.
In light of this, it's understandable that Laureate Education's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Laureate Education maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
It is also worth noting that we have found 4 warning signs for Laureate Education (2 are concerning!) that you need to take into consideration.
If you're unsure about the strength of Laureate Education's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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