When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 15x, you may consider CIRCOR International, Inc. (NYSE:CIR) as a stock to avoid entirely with its 30.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Recent times haven't been advantageous for CIRCOR International as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on CIRCOR International.
Is There Enough Growth For CIRCOR International?
The only time you'd be truly comfortable seeing a P/E as steep as CIRCOR International's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.
Looking ahead now, EPS is anticipated to climb by 41% per year during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 9.8% each year growth forecast for the broader market.
With this information, we can see why CIRCOR International is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On CIRCOR International's P/E
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.
As we suspected, our examination of CIRCOR International'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. Unless these conditions change, they will continue to provide strong support to the share price.
It is also worth noting that we have found 2 warning signs for CIRCOR International (1 makes us a bit uncomfortable!) that you need to take into consideration.
If these risks are making you reconsider your opinion on CIRCOR International, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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