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Investors Interested In Colfax Corporation's (NYSE:CFX) Earnings

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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 19x, you may consider Colfax Corporation (NYSE:CFX) as a stock to avoid entirely with its 71.8x 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.

With earnings growth that's superior to most other companies of late, Colfax has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Colfax

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

Does Growth Match The High P/E?

In order to justify its P/E ratio, Colfax would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 91% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 52% per year over the next three years. That's shaping up to be materially higher than the 14% per annum growth forecast for the broader market.

With this information, we can see why Colfax 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 Key Takeaway

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 Colfax 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Colfax (including 1 which is potentially serious).

If you're unsure about the strength of Colfax's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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 (at) simplywallst.com.