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Unfortunately for some shareholders, the Orion Energy Systems, Inc. (NASDAQ:OESX) share price has dived 26% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 67% in the last year.
In spite of the heavy fall in price, Orion Energy Systems may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 58.4x, since almost half of all companies in the United States have P/E ratios under 22x and even P/E's lower than 12x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Orion Energy Systems hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Orion Energy Systems will help you uncover what's on the horizon.
How Is Orion Energy Systems' Growth Trending?
Orion Energy Systems' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 72%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 79% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.
In light of this, it's understandable that Orion Energy Systems' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Orion Energy Systems' P/E
A significant share price dive has done very little to deflate Orion Energy Systems' very lofty 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 Orion Energy Systems' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Orion Energy Systems that you need to be mindful of.
Of course, you might also be able to find a better stock than Orion Energy Systems. 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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