Franklin Covey Co. (NYSE:FC) Shares May Have Slumped 34% But Getting In Cheap Is Still Unlikely

Unfortunately for some shareholders, the Franklin Covey Co. (NYSE:FC) share price has dived 34% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 45% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Franklin Covey's price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent times have been advantageous for Franklin Covey as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Franklin Covey

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Franklin Covey's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a worthy increase of 5.8%. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 3.8% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 46% during the coming year according to the three analysts following the company. With the market predicted to deliver 14% growth , that's a disappointing outcome.

In light of this, it's somewhat alarming that Franklin Covey's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Franklin Covey's P/E?

With its share price falling into a hole, the P/E for Franklin Covey looks quite average now. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Franklin Covey's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these 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 1 warning sign for Franklin Covey that you should be aware of.

Of course, you might also be able to find a better stock than Franklin Covey. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.