Kaiser Aluminum Corporation's (NASDAQ:KALU) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

The Kaiser Aluminum Corporation (NASDAQ:KALU) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 45% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Kaiser Aluminum's P/E ratio of 17.3x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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For instance, Kaiser Aluminum's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Kaiser Aluminum

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kaiser Aluminum will help you shine a light on its historical performance.

Does Growth Match The P/E?

In order to justify its P/E ratio, Kaiser Aluminum would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 1.1% decrease to the company's bottom line. 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. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Kaiser Aluminum's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

With its share price falling into a hole, the P/E for Kaiser Aluminum looks quite average now. 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 Kaiser Aluminum revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Kaiser Aluminum (2 are concerning) you should be aware of.

You might be able to find a better investment than Kaiser Aluminum. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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