Investors Don't See Light At End Of Boot Barn Holdings, Inc.'s (NYSE:BOOT) Tunnel
Boot Barn Holdings, Inc.'s (NYSE:BOOT) price-to-earnings (or "P/E") ratio of 14.5x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 33x 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 limited.
Boot Barn Holdings has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for Boot Barn Holdings
Keen to find out how analysts think Boot Barn Holdings' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Boot Barn Holdings?
The only time you'd be truly comfortable seeing a P/E as low as Boot Barn Holdings' is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 328% in total over the last three years. 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.
Turning to the outlook, the next three years should generate growth of 6.2% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 12% per annum growth forecast for the broader market.
In light of this, it's understandable that Boot Barn Holdings' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Boot Barn 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 Boot Barn Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Boot Barn Holdings with six simple checks on some of these key factors.
Of course, you might also be able to find a better stock than Boot Barn Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
