When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider PROG Holdings, Inc. (NYSE:PRG) as an attractive investment with its 8.8x 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.
PROG Holdings certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for PROG Holdings
Is There Any Growth For PROG Holdings?
In order to justify its P/E ratio, PROG Holdings would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 83% last year. The strong recent performance means it was also able to grow EPS by 732% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 0.5% each year during the coming three years according to the six analysts following the company. With the market predicted to deliver 13% growth per year, the company is positioned for a weaker earnings result.
With this information, we can see why PROG Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From PROG Holdings' 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 PROG Holdings' analyst forecasts revealed that its inferior earnings outlook 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.
Plus, you should also learn about these 3 warning signs we've spotted with PROG Holdings (including 1 which is a bit unpleasant).
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.