U.S. Xpress Enterprises (NYSE:USX) shareholders are no doubt pleased to see that the share price has had a great month, posting a 40% gain, recovering from prior weakness. However, that doesn't change the fact that longer term shareholders might have been mercilessly wrecked by the 65% share price decline throughout the year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for U.S. Xpress Enterprises
How Does U.S. Xpress Enterprises's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 7.74 that sentiment around U.S. Xpress Enterprises isn't particularly high. The image below shows that U.S. Xpress Enterprises has a lower P/E than the average (17.5) P/E for companies in the transportation industry.
Its relatively low P/E ratio indicates that U.S. Xpress Enterprises shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with U.S. Xpress Enterprises, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. Earnings growth means that in the future the 'E' will be higher. And in that case, the P/E ratio itself will drop rather quickly. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
U.S. Xpress Enterprises's earnings per share fell by 51% in the last twelve months.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.