When almost half of the companies in the United States have price-to-earnings (or “P/E”) ratios above 19x, you might think about it Safe Bulkers, Inc. (NYSE:SB) as an extremely attractive investment with a P/E ratio of 5.5x. However, the P/E ratio could be quite low for a reason and further research is needed to determine whether it is justified.

Safe Bulkers has been struggling lately, with its profits falling faster than most other companies. It seems many are expecting the dismal earnings performance that has depressed the P/E ratio to continue. If you still like the company, you’ll want to see its earnings trend change before making any decisions. At the very least, if you plan on buying up stocks as they fall out of favor, you hope the earnings decline doesn’t get any worse.

Check out our latest analysis for safe bulkers

Want to know how analysts think Safe Bulkers’ future compares to the industry? In this case ours free The report is a good start.

Does the growth correspond to the low P/E ratio?

There is an inherent assumption that for P/E ratios like Safe Bulkers’s to be considered reasonable, a company should be performing well below the market.

If we review the last year of earnings, the company’s earnings disappointingly fell by 17%. Despite the unsatisfactory short-term performance, overall earnings per share increased by an excellent 62% over the last three-year period. So we can start by confirming that the company has generally performed very well in terms of earnings growth during this period, although there have been some issues along the way.

As for the outlook, the company is expected to generate growth of 12% per year over the next three years, according to estimates from the only analyst covering the company. With the market forecast to grow 10% annually, the company is positioned for a comparable outcome.

Given this information, we find it strange that Safe Bulkers is trading at a lower P/E than the market. Most investors may not be convinced that the company can meet future growth expectations.

The key takeaway

We typically caution against reading too much into the price-to-earnings ratio when making investment decisions, even though it can reveal a lot about what other market participants think about the company.

Our review of Safe Bulkers’ analyst forecasts found that its market-based earnings outlook doesn’t contribute as much to its P/E as we would have expected. When we see an average earnings outlook with market-like growth, we assume that potential risks could put downward pressure on the P/E ratio. At least the risk of a price decline appears to be muted, but investors seem to believe there could be some volatility in future returns.

And what about other risks? Every company has them, and we discovered them 2 warning signs for Safe Bulkers you should know that.

It is important Make sure you’re looking for a great company and not just the first idea you come across. So take a look free List of interesting companies with strong recent earnings growth (and a low P/E ratio).

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.