With FirstCash Holdings, Inc (NASDAQ:FCFS) It Looks Like You'll Get What You Pay For
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 14x, you may consider FirstCash Holdings, Inc (NASDAQ:FCFS) as a stock to avoid entirely with its 26.8x 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 FirstCash Holdings 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.
View our latest analysis for FirstCash Holdings
If you'd like to see what analysts are forecasting going forward, you should check out our free report on FirstCash Holdings.
Is There Enough Growth For FirstCash Holdings?
In order to justify its P/E ratio, FirstCash Holdings would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings growth, the company posted a worthy increase of 7.1%. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 28% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 42% per year as estimated by the four analysts watching the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.
With this information, we can see why FirstCash Holdings 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.
What We Can Learn From FirstCash Holdings' P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that FirstCash Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
Having said that, be aware FirstCash Holdings is showing 3 warning signs in our investment analysis, you should know about.
You might be able to find a better investment than FirstCash Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (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.
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