Little Excitement Around GUD Holdings Limited's (ASX:GUD) Earnings

Simply Wall St.06-22

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") above 19x, you may consider GUD Holdings Limited (ASX:GUD) as an attractive investment with its 14.7x P/E ratio...

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Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.     GUD Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies.   It might be that many expect the strong earnings performance to degrade substantially, 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.      View our latest analysis for GUD Holdings ASX:GUD Price to Earnings Ratio vs Industry June 21st 2024 Keen to find out how analysts think GUD Holdings' future stacks up against the industry? In that case, our free report is a great place to start.  Does Growth Match The Low P/E?   In order to justify its P/E ratio, GUD Holdings 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 114% last year.    Pleasingly, EPS has also lifted 39% 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 three years should generate growth of 5.5%  per year as estimated by the ten analysts watching the company.  That's shaping up to be materially lower than the 17% per annum growth forecast for the broader market.  In light of this, it's understandable that GUD Holdings' P/E sits below the majority of other companies.  Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.    What We Can Learn From GUD Holdings' P/E?  Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.  We've established that GUD Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected.  At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio.  It's hard to see the share price rising strongly in the near future under these circumstances.      Having said that, be aware  GUD Holdings is showing 1 warning sign in our investment analysis, you should know about.   If these risks are making you reconsider your opinion on GUD Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there. Valuation is complex, but we're helping make it simple.Find out whether GUD Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave 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.Valuation is complex, but we're helping make it simple.Find out whether GUD Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. 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