Main Street Capital Corporation's (NYSE:MAIN) price-to-earnings (or "P/E") ratio of 9.9x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Main Street Capital has been doing quite well of late. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think Main Street Capital's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like Main Street Capital's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 61%. Pleasingly, EPS has also lifted 1,027% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 17% during the coming year according to the six analysts following the company. That's not great when the rest of the market is expected to grow by 12%.
In light of this, it's understandable that Main Street Capital'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. 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 Main Street Capital's P/E
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.
As we suspected, our examination of Main Street Capital'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.
There are also other vital risk factors to consider and we've discovered 6 warning signs for Main Street Capital (2 are potentially serious!) that you should be aware of before investing here.
You might be able to find a better investment than Main Street Capital. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.
与美国市场相比,Main Street Capital Corporation(纽约证券交易所代码:MAIN)9.9倍的市盈率(或 “市盈率”)可能使其目前看起来像买入,美国约有一半的公司的市盈率高于17倍,甚至市盈率高于32倍也很常见。尽管如此,我们需要更深入地挖掘,以确定降低市盈率是否有合理的基础。
与大多数其他公司的收益下降相比,其收益增长处于正值区间,Main Street Capital最近表现良好。一种可能性是市盈率很低,因为投资者认为该公司的收益将像其他所有人一样很快下降。如果不是,那么现有股东就有理由对股价的未来走向非常乐观。
想了解分析师如何看待Main Street Capital的未来与该行业的对立吗?在这种情况下,我们的免费报告是一个很好的起点。
关于低市盈率,增长指标告诉我们什么?
人们固有的假设是,如果像Main Street Capital这样的市盈率才算合理,公司的表现应该低于市场。