Ultralife Corporation's (NASDAQ:ULBI) Share Price Is Still Matching Investor Opinion Despite 25% Slump
Ultralife Corporation's (NASDAQ:ULBI) share price has dropped 25% in the last 30 days, contributing to a 37% decline over the year. Despite this slump, the company's high P/E ratio of 33.9x suggests investor optimism about future earnings growth, which is projected to be 306% next year, significantly higher than the market average of 15%. However, the company has faced a 69% decline in earnings per share over the past year, raising concerns about its financial stability. Investors remain cautious but hopeful for recovery.
Explore Ultralife's Fair Values from the Community and select yours
The Ultralife Corporation (NASDAQ:ULBI) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.
Even after such a large drop in price, Ultralife may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33.9x, since almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 11x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
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While the market has experienced earnings growth lately, Ultralife's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Check out our latest analysis for Ultralife
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ultralife.
Is There Enough Growth For Ultralife?
The only time you'd be truly comfortable seeing a P/E as steep as Ultralife's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 69%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 306% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader market.
In light of this, it's understandable that Ultralife's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Ultralife's P/E
Ultralife's shares may have retreated, but its P/E is still flying high. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Ultralife's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Ultralife you should know about.
If you're unsure about the strength of Ultralife's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
