When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Vishay Intertechnology, Inc. (NYSE:VSH) as an attractive investment with its 9.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Vishay Intertechnology has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
NYSE:VSH Price to Earnings Ratio vs Industry April 26th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vishay Intertechnology.
Does Growth Match The Low P/E?
Vishay Intertechnology's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. Even so, admirably EPS has lifted 177% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 6.5% per annum over the next three years. With the market predicted to deliver 11% growth each year, that's a disappointing outcome.
With this information, we are not surprised that Vishay Intertechnology is trading at a P/E lower than the market. 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.
What We Can Learn From Vishay Intertechnology's P/E?
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Vishay Intertechnology's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Vishay Intertechnology (1 is a bit concerning!) that you need to be mindful of.
Of course, you might also be able to find a better stock than Vishay Intertechnology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.