A piece of the puzzle is missing in the action of G-III Apparel Group, Ltd. (NASDAQ: GIII)
It’s no exaggeration to say that G-III Apparel Group, Ltd. (NASDAQ: GIII) a price / earnings (or “P / E”) ratio of 16.1x currently looks quite “average” compared to the US market, where the median P / E ratio is around 18x . However, investors can ignore an obvious opportunity or potential setback if there is no rational basis for the P / E.
While the market has seen profit growth lately, G-III Apparel Group profits have been in reverse, which is not great. Many may expect the poor earnings performance to strengthen positively, which has kept the P / E from falling. Otherwise, existing shareholders might be a little worried about the sustainability of the share price.
NasdaqGS Price: GIII based on historical earnings August 9, 2021
free report on G-III Apparel Group
Is there some growth for the G-III clothing group?
The only time you’d be comfortable seeing a P / E like that of G-III Apparel Group is when the growth of the company closely follows the market.
Looking back at the results of the past year, the company’s profits have fallen discouragingly to 4.2%. Regardless, EPS managed to grow 9.6% overall from three years ago, thanks to the previous growth period. So while they would have preferred to continue the race, shareholders would be roughly satisfied with the earnings growth rates over the medium term.
Looking to the future, estimates from the seven analysts covering the company suggest earnings are expected to rise 19% each year over the next three years. Meanwhile, the rest of the market is only expected to grow by 12% per year, which is significantly less attractive.
With this information, we find it interesting that G-III Apparel Group is trading at a P / E quite similar to the market. Most investors may not be convinced that the company can meet expectations for future growth.
The last word
We would say that the power of the price / earnings ratio is not primarily as a valuation instrument, but rather to assess current investor sentiment and future expectations.
Our review of analyst forecasts for G-III Apparel Group revealed that its superior earnings outlook is not contributing to its P / E as much as we would have expected. When we see a strong outlook for earnings with faster-than-market growth, we assume that the potential risks are what could put pressure on the P / E ratio. It appears that some are indeed anticipating earnings volatility as these conditions should normally provide a boost to the stock price.
Remember that there may be other risks. For example, we have identified 2 warning signs for G-III Apparel Group that you need to be aware of.
If these risks make you reconsider your opinion of G-III Apparel Group, explore our interactive list of high-quality stocks to get a feel for what’s out there.
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