Despite an already strong run, Harte Hanks, Inc. (NASDAQ:HHS) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 141% following the latest surge, making investors sit up and take notice.
Although its price has surged higher, Harte Hanks' price-to-earnings (or "P/E") ratio of 9.1x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 16x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With earnings growth that's superior to most other companies of late, Harte Hanks has been doing relatively well. 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.
Keen to find out how analysts think Harte Hanks' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Harte Hanks' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Harte Hanks' is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 69% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 18% as estimated by the twin analysts watching the company. With the market predicted to deliver 8.9% growth , that's a disappointing outcome.
With this information, we are not surprised that Harte Hanks is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Key Takeaway
Harte Hanks' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of Harte Hanks' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Harte Hanks that you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.
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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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