Cautious Investors Not Rewarding Trinity Industries, Inc.'s (NYSE:TRN) Performance Completely
Trinity Industries, Inc. (NYSE:TRN) has a P/E ratio of 20.6x, close to the US market median of 19x. Despite recent market earnings growth, Trinity's earnings have declined, leading to cautious investor sentiment. Analysts forecast a 19% EPS growth for the next year, higher than the market's 16%. However, the P/E ratio suggests investors are skeptical about future growth. The company's past year EPS dropped by 45%, but it has grown 72% over three years. Potential risks and earnings instability may be affecting the P/E ratio.
It's not a stretch to say that Trinity Industries, Inc.'s (NYSE:TRN) price-to-earnings (or "P/E") ratio of 20.6x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
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While the market has experienced earnings growth lately, Trinity Industries' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
View our latest analysis for Trinity Industries
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Trinity Industries.
How Is Trinity Industries' Growth Trending?
In order to justify its P/E ratio, Trinity Industries would need to produce growth that's similar to the market.
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 45%. Even so, admirably EPS has lifted 72% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 19% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 16% growth forecast for the broader market.
With this information, we find it interesting that Trinity Industries is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.
What We Can Learn From Trinity Industries' P/E?
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Trinity Industries' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Plus, you should also learn about these 3 warning signs we've spotted with Trinity Industries (including 2 which are a bit unpleasant).
Of course, you might also be able to find a better stock than Trinity Industries. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
