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Duluth Holdings Inc. (NASDAQ:DLTH) shares have continued their recent momentum with a 55% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.
Following the firm bounce in price, Duluth Holdings' price-to-earnings (or "P/E") ratio of 27.3x 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 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.
Recent times have been pleasing for Duluth Holdings as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Duluth Holdings will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, Duluth Holdings would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 21% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next year should generate growth of 34% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 5.4%, which is noticeably less attractive.
In light of this, it's understandable that Duluth Holdings' 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 Duluth Holdings' P/E
The large bounce in Duluth Holdings' shares has lifted the company's P/E to a fairly high level. 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 Duluth 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. Unless these conditions change, they will continue to provide strong support to the share price.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Duluth Holdings (of which 1 shouldn't be ignored!) you should know about.
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.
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