Unfortunately for some shareholders, the Travelzoo (NASDAQ:TZOO) share price has dived 27% in the last thirty days, prolonging recent pain. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 16%.

Even after such a large drop in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Travelzoo as an attractive investment with its 9.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Travelzoo 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.

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Is There Any Growth For Travelzoo?

Travelzoo's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. Pleasingly, EPS has also lifted 1,420% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the four analysts watching the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that Travelzoo is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Travelzoo's P/E?

Travelzoo's P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Travelzoo currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Travelzoo , and understanding should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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