Unfortunately for some shareholders, the Universal Logistics Holdings, Inc. (NASDAQ:ULH) share price has dived 28% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 7.4% in the last year.
Since its price has dipped substantially, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Universal Logistics Holdings as a highly attractive investment with its 6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Universal Logistics Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Universal Logistics Holdings
Is There Any Growth For Universal Logistics Holdings?
The only time you'd be truly comfortable seeing a P/E as depressed as Universal Logistics Holdings' is when the company's growth is on track to lag the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. Pleasingly, EPS has also lifted 80% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 43% as estimated by the sole analyst watching the company. With the market predicted to deliver 15% growth , that's a disappointing outcome.
In light of this, it's understandable that Universal Logistics Holdings' 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.
The Key Takeaway
Having almost fallen off a cliff, Universal Logistics Holdings' share price has pulled its P/E way down as well. 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 Universal Logistics Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 2 warning signs for Universal Logistics Holdings that we have uncovered.
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.
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.