Cricut, Inc.'s (NASDAQ:CRCT) Shareholders Might Be Looking For Exit

Cricut, Inc. Class A -2.53% Pre

Cricut, Inc. Class A

CRCT

5.00

5.00

-2.53%

0.00% Pre

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Cricut, Inc. (NASDAQ:CRCT) as a stock to avoid entirely with its 27.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For instance, Cricut's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Cricut

pe-multiple-vs-industry
NasdaqGS:CRCT Price to Earnings Ratio vs Industry December 30th 2023
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Cricut's earnings, revenue and cash flow.

Is There Enough Growth For Cricut?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Cricut's to be considered reasonable.

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 15%. As a result, earnings from three years ago have also fallen 50% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Cricut is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

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 Cricut revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Cricut (1 can't be ignored!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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