RKT Stock – Academy Sports and Outdoors, Inc.’s (NASDAQ:ASO) price Is Right But Growth Is Lacking After Shares Rocket 25%
Academy Sports and Outdoors, Inc. (NASDAQ:ASO) shares have continued their recent momentum with a 25% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.
Although its price has surged higher, Academy Sports and Outdoors may still be sending very bullish signals at the moment with its price-to-earnings (or “P/E”) ratio of 7.8x, since almost half of all companies in the United States have P/E ratios greater than 23x and even P/E’s higher than 43x 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 so limited.
Recent times have been advantageous for Academy Sports and Outdoors as its earnings have been rising faster 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.
Check out our latest analysis for Academy Sports and Outdoors
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Is There Any Growth For Academy Sports and Outdoors?
There’s an inherent assumption that a company should far underperform the market for P/E ratios like Academy Sports and Outdoors’ to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 140%. The strong recent performance means it was also able to grow EPS by 1,443% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the eight analysts covering the company suggest earnings growth is heading into negative territory, declining 4.0% per annum over the next three years. With the market predicted to deliver 15% growth per year, that’s a disappointing outcome.
In light of this, it’s understandable that Academy Sports and Outdoors’ P/E would sit below the majority of other companies. Nonetheless, there’s no guarantee the P/E has reached a floor yet with earnings going in reverse. There’s potential for the P/E to fall to even lower levels if the company doesn’t improve its profitability.
The Bottom Line On Academy Sports and Outdoors’ P/E
Academy Sports and Outdoors’ recent share price jump still sees its P/E sitting firmly flat on the ground. We’d say the price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We’ve established that Academy Sports and Outdoors maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won’t provide any pleasant surprises. It’s hard to see the share price rising strongly in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for Academy Sports and Outdoors that we have uncovered.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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