Earnings Working Against MYR Group Inc.'s (NASDAQ:MYRG) Share Price
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider MYR Group Inc. (NASDAQ:MYRG) as an attractive investment with its 13.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
MYR Group 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 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.
Check out our latest analysis for MYR Group
If you'd like to see what analysts are forecasting going forward, you should check out our free report on MYR Group.
How Is MYR Group's Growth Trending?
In order to justify its P/E ratio, MYR Group 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 39% last year. The latest three year period has also seen an excellent 174% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 6.0% each year over the next three years. 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 MYR Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that MYR Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.
Plus, you should also learn about this 1 warning sign we've spotted with MYR Group.
If these risks are making you reconsider your opinion on MYR Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
This article by Simply Wall St is general in nature. 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.
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