Investors Aren't Buying Jabil Inc.'s (NYSE:JBL) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Jabil Inc. (NYSE:JBL) as an attractive investment with its 10.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Jabil as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Is There Any Growth For Jabil?

In order to justify its P/E ratio, Jabil would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 84% gain to the company's bottom line. Pleasingly, EPS has also lifted 162% 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.

Looking ahead now, EPS is anticipated to slump, contracting by 8.0% each year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 11% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that Jabil's P/E would sit below the majority of other companies. 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.

What We Can Learn From Jabil's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Jabil 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.

You need to take note of risks, for example - Jabil has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If these risks are making you reconsider your opinion on Jabil, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.