Take Care Before Jumping Onto WW International, Inc. (NASDAQ:WW) Even Though It's 27% Cheaper

The WW International, Inc. (NASDAQ:WW) share price has fared very poorly over the last month, falling by a substantial 27%. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

After such a large drop in price, WW International may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.5x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 36x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

WW International has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. 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.

Check out our latest analysis for WW International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on WW International.

How Is WW International's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as WW International's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 47% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 23% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 23% per year over the next three years. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.

With this information, we find it odd that WW International is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From WW International's P/E?

WW International's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that WW International currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for WW International (of which 1 is concerning!) you should know about.

Of course, you might also be able to find a better stock than WW International. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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