Investors Holding Back On CAI International, Inc. (NYSE:CAI)
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider CAI International, Inc. (NYSE:CAI) as an attractive investment with its 12.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With earnings that are retreating more than the market's of late, CAI International has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for CAI International
Want the full picture on analyst estimates for the company? Then our free report on CAI International will help you uncover what's on the horizon.
How Is CAI International's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as CAI International's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 157% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Shifting to the future, estimates from the twin analysts covering the company suggest earnings should grow by 34% each year over the next three years. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.
With this information, we find it odd that CAI International is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On CAI International's P/E
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.
Our examination of CAI International's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
There are also other vital risk factors to consider and we've discovered 5 warning signs for CAI International (1 is potentially serious!) that you should be aware of before investing here.
You might be able to find a better investment than CAI International. 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).
This article by Simply Wall St is general in nature. 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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