With a price-to-earnings (or "P/E") ratio of 11.3x ABM Industries Incorporated (NYSE:ABM) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been pleasing for ABM Industries as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.
NYSE:ABM Price to Earnings Ratio vs Industry May 12th 2024
Keen to find out how analysts think ABM Industries' future stacks up against the industry? In that case, our free report is a great place to start.
How Is ABM Industries' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as ABM Industries' is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. Pleasingly, EPS has also lifted 481% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to slump, contracting by 2.9% each year during the coming three years according to the eight analysts following the company. With the market predicted to deliver 9.9% growth per year, that's a disappointing outcome.
In light of this, it's understandable that ABM Industries' 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.
What We Can Learn From ABM Industries' 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 ABM Industries' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 3 warning signs for ABM Industries (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 ABM Industries. 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.