NASDAQ:MIK) price-to-earnings (or "P/E") ratio of 7.8x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E’s above 39x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.” data-reactid=”28″>The Michaels Companies, Inc.’s (NASDAQ:MIK) price-to-earnings (or “P/E”) ratio of 7.8x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E’s above 39x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Recent times haven’t been advantageous for Michaels Companies as its earnings have been falling quicker than most other companies. 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. Or at the very least, you’d be hoping the earnings slide doesn’t get any worse if your plan is to pick up some stock while it’s out of favour.
See our latest analysis for Michaels Companies ” data-reactid=”30″>See our latest analysis for Michaels Companies
free report is a great place to start.” data-reactid=”47″>Keen to find out how analysts think Michaels Companies’ future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Michaels Companies?
Michaels Companies’ P/E ratio would be typical for a company that’s expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 43% decrease to the company’s bottom line. As a result, earnings from three years ago have also fallen 40% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 0.6% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 14% per annum, which is noticeably more attractive.
In light of this, it’s understandable that Michaels Companies’ P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We’ve established that Michaels Companies 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
4 warning signs for Michaels Companies (1 is concerning!) that you need to be mindful of.” data-reactid=”56″>We don’t want to rain on the parade too much, but we did also find 4 warning signs for Michaels Companies (1 is concerning!) that you need to be mindful of.
our interactive list of high quality stocks to get an idea of what else is out there.” data-reactid=”57″>If these risks are making you reconsider your opinion on Michaels Companies, explore our interactive list of high quality stocks to get an idea of what else is out there.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>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.