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Ichor Holdings, Ltd. (NASDAQ:ICHR) Not Lagging Market On Growth Or Pricing

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Ichor Holdings, Ltd.'s (NASDAQ:ICHR) price-to-earnings (or "P/E") ratio of 24.7x 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 18x and even P/E's below 10x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Ichor Holdings as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Ichor Holdings

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ichor Holdings.

How Is Ichor Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Ichor Holdings' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. However, this wasn't enough as the latest three year period has seen a very unpleasant 53% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 55% each year over the next three years. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Ichor 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.

The Bottom Line On Ichor Holdings' P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Ichor Holdings' 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Ichor Holdings (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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@simplywallst.com.