Hudson Technologies, Inc. (NASDAQ:HDSN) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 36%, which is great even in a bull market.
Although its price has dipped substantially, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Hudson Technologies as an attractive investment with its 9.2x 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.
Hudson Technologies 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. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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.
NasdaqCM:HDSN Price to Earnings Ratio vs Industry April 6th 2024
Keen to find out how analysts think Hudson Technologies' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Hudson Technologies' Growth Trending?
Hudson Technologies' 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 50% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Looking ahead now, EPS is anticipated to slump, contracting by 16% during the coming year according to the four analysts following the company. With the market predicted to deliver 11% growth , that's a disappointing outcome.
With this information, we are not surprised that Hudson Technologies 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
What We Can Learn From Hudson Technologies' P/E?
Hudson Technologies' recently weak share price has pulled its P/E below most other companies. 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.
We've established that Hudson Technologies maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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 1 warning sign for Hudson Technologies that you need to be mindful of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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