With a price-to-earnings (or "P/E") ratio of 5.2x Costamare Inc. (NYSE:CMRE) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings that are retreating more than the market's of late, Costamare has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Costamare

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 31%. Even so, admirably EPS has lifted 90% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 5.5% per year over the next three years. With the market predicted to deliver 10% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Costamare is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Costamare maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Costamare (1 is a bit concerning!) that you should be aware of before investing here.

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