Enerpac Tool Group Corp. (NYSE:EPAC) Not Flying Under The Radar
With a price-to-earnings (or "P/E") ratio of 30x Enerpac Tool Group Corp. (NYSE:EPAC) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Enerpac Tool Group has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Enerpac Tool Group
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Enerpac Tool Group.
Is There Enough Growth For Enerpac Tool Group?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Enerpac Tool Group's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 188% last year. The latest three year period has also seen an excellent 965% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 47% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.
In light of this, it's understandable that Enerpac Tool Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Enerpac Tool Group's P/E
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Enerpac Tool Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.
Having said that, be aware Enerpac Tool Group is showing 1 warning sign in our investment analysis, you should know about.
You might be able to find a better investment than Enerpac Tool Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
