Despite an already strong run, Atlanticus Holdings Corporation (NASDAQ:ATLC) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

Although its price has surged higher, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Atlanticus Holdings as a highly attractive investment with its 8.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Atlanticus Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Atlanticus Holdings.

Is There Any Growth For Atlanticus Holdings?

In order to justify its P/E ratio, Atlanticus Holdings would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.8% last year. Still, lamentably EPS has fallen 38% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 2.3% as estimated by the five analysts watching the company. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

In light of this, it's understandable that Atlanticus Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Atlanticus Holdings' P/E

Shares in Atlanticus Holdings are going to need a lot more upward momentum to get the company's P/E out of its slump. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Atlanticus Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

If these risks are making you reconsider your opinion on Atlanticus Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.