With a price-to-earnings (or "P/E") ratio of 5.8x Caxton and CTP Publishers and Printers Limited (JSE:CAT) may be sending bullish signals at the moment, given that almost half of all companies in South Africa have P/E ratios greater than 9x and even P/E's higher than 14x 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.
Recent times haven't been advantageous for Caxton and CTP Publishers and Printers as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for Caxton and CTP Publishers and Printers
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Does Growth Match The Low P/E?
In order to justify its P/E ratio, Caxton and CTP Publishers and Printers would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 75% overall rise in EPS, in spite of its uninspiring short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 12% each year during the coming three years according to the lone analyst following the company. With the market only predicted to deliver 7.7% per year, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Caxton and CTP Publishers and Printers' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Caxton and CTP Publishers and Printers' 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 Caxton and CTP Publishers and Printers currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Caxton and CTP Publishers and Printers, and understanding should be part of your investment process.
You might be able to find a better investment than Caxton and CTP Publishers and Printers. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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.
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