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Earnings Tell The Story For Nutrien Ltd. (TSE:NTR)

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With a price-to-earnings (or "P/E") ratio of 53.3x Nutrien Ltd. (TSE:NTR) may be sending very bearish signals at the moment, given that almost half of all companies in Canada have P/E ratios under 14x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Nutrien hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Nutrien

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Want the full picture on analyst estimates for the company? Then our free report on Nutrien will help you uncover what's on the horizon.

Is There Enough Growth For Nutrien?

Nutrien's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. Still, the latest three year period has seen an excellent 1,735% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Looking ahead now, EPS is anticipated to climb by 43% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 6.4% each year, which is noticeably less attractive.

With this information, we can see why Nutrien 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 Nutrien'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 Nutrien's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Nutrien has 4 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Nutrien. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.