When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Superior Group of Companies, Inc. (NASDAQ:SGC) as an attractive investment with its 14.5x 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.
With earnings growth that's exceedingly strong of late, Superior Group of Companies has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.
Although there are no analyst estimates available for Superior Group of Companies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Any Growth For Superior Group of Companies?
There's an inherent assumption that a company should underperform the market for P/E ratios like Superior Group of Companies' to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 60% last year. Pleasingly, EPS has also lifted 42% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Comparing that to the market, which is only predicted to deliver 5.2% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
In light of this, it's peculiar that Superior Group of Companies' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
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 Superior Group of Companies currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Superior Group of Companies that you need to be mindful of.
If these risks are making you reconsider your opinion on Superior Group of Companies, 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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