Earnings Working Against Centaur Media Plc's (LON:CAU) Share Price Following 27% Dive

Unfortunately for some shareholders, the Centaur Media Plc (LON:CAU) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Even after such a large drop in price, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Centaur Media as a highly attractive investment with its 7.6x 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 so limited.

With earnings growth that's superior to most other companies of late, Centaur Media 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Centaur Media

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Centaur Media.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Centaur Media's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Pleasingly, EPS has also lifted 4,363% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 17% per year as estimated by the three analysts watching the company. Meanwhile, the broader market is forecast to expand by 13% per year, which paints a poor picture.

In light of this, it's understandable that Centaur Media's 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Centaur Media's P/E?

Centaur Media's P/E looks about as weak as its stock price lately. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Centaur Media's 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 5 warning signs for Centaur Media (1 shouldn't be ignored!) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.