TEGNA Inc.'s (NYSE:TGNA) price-to-earnings (or "P/E") ratio of 5.9x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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TEGNA could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

See our latest analysis for TEGNA

Keen to find out how analysts think TEGNA's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TEGNA's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as TEGNA's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 29% overall rise in EPS. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 10% each year during the coming three years according to the six analysts following the company. That's not great when the rest of the market is expected to grow by 10% per annum.

With this information, we are not surprised that TEGNA is trading at a P/E lower than the market. 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 Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of TEGNA's 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.

Plus, you should also learn about these 3 warning signs we've spotted with TEGNA (including 1 which is a bit concerning).

Of course, you might also be able to find a better stock than TEGNA. 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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