CBIZ, Inc.'s (NYSE:CBZ) Share Price Not Quite Adding Up
CBIZ, Inc.'s (NYSE:CBZ) price-to-earnings (or "P/E") ratio of 24.9x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, CBIZ has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for CBIZ
If you'd like to see what analysts are forecasting going forward, you should check out our free report on CBIZ.
How Is CBIZ's Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like CBIZ's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 18% last year. The strong recent performance means it was also able to grow EPS by 73% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 6.7% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 10%, which is noticeably more attractive.
In light of this, it's alarming that CBIZ's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Bottom Line On CBIZ's P/E
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that CBIZ currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Having said that, be aware CBIZ is showing 2 warning signs in our investment analysis, you should know about.
If you're unsure about the strength of CBIZ's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
