Yahoo Finance Investors Still Waiting For A Pull Back In Motorcar Parts of America, Inc. (NASDAQ:MPAA)
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Motorcar Parts of America, Inc. (NASDAQ:MPAA) as a stock to potentially avoid with its 23.2x 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 lofty.
Recent times have been advantageous for Motorcar Parts of America as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Motorcar Parts of America
Keen to find out how analysts think Motorcar Parts of America's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Growth For Motorcar Parts of America?
The only time you'd be truly comfortable seeing a P/E as high as Motorcar Parts of America's is when the company's growth is on track to outshine the market.
If we review the last year of earnings growth, the company posted a terrific increase of 185%. Pleasingly, EPS has also lifted 253% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 119% during the coming year according to the twin analysts following the company. That's shaping up to be materially higher than the 11% growth forecast for the broader market.
With this information, we can see why Motorcar Parts of America is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Motorcar Parts of America's P/E
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.
As we suspected, our examination of Motorcar Parts of America's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
It is also worth noting that we have found 2 warning signs for Motorcar Parts of America that you need to take into consideration.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
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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.
