History of SeaWorld Entertainment, Inc (NYSE:SEAS)’s price-to-earnings (or “P/E”) ratio of 11.9x may seem like a buy right now compared to the market in the United States, where almost half of companies have a P/E. ratios above 15x and even P/E above 30x are common. However, we need to dig a little deeper to see if there is a logical basis for the discounted P/E.
SeaWorld Entertainment has certainly been doing a good job lately as it has been growing earnings more than most other companies. Another possibility is that the P/E is low because investors think that the strong performance of these earnings may be less advanced. If you like a company, you’re hoping this isn’t the case so you can pick up some stock while it’s out of favor.
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What Are Growth Metrics Telling Us About The Low P/E?
There is an internal assumption that a company must perform below market P/E ratios like SeaWorld Entertainment’s to be considered reasonable.
Looking back first, we see that the company grew earnings per share by an impressive 143% last year. Interestingly, EPS also rose 293% in volume from three years ago, thanks to the last 12 months of growth. Therefore, it is reasonable to say that the recent earnings growth has been excellent for the company.
Looking ahead now, EPS is expected to rise by 8.4% during the next year according to nine analysts that follow the company. With the market forecast to deliver 7.3% growth, the company is positioned for similar earnings results.
Because of this, it is surprising that SeaWorld Entertainment’s P/E sits below the average of other companies. It could be that many investors are not convinced that the company can meet its future growth expectations.
The Bottom Line On SeaWorld Entertainment’s P/E
We would say that the strength of the price-to-earnings ratio is not as a measuring stick but rather as a measure of the owner’s current sentiments and future expectations.
We found that SeaWorld Entertainment is currently trading at a lower than expected P/E as its growth projections are in line with the broader market. There may be unseen threats to earnings that prevent the P/E ratio from matching the outlook. At least the risk of a price drop seems to have been reduced, but they seem to think that future earnings may see volatility.
You said that, you know SeaWorld Entertainment is showing a warning sign in our investment analysis, you should know about it.
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This Simply Wall St article is casual in nature. We provide commentary based on historical data and analysts’ estimates only using an unbiased approach and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and it does not take into account your goals, or your financial situation. We aim to bring you long-term focused research driven by valuable data. Note that our analysis may not result in price-sensitive or quality-sensitive company advertisements. Simply Wall St has no position in any of the stocks mentioned.