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With Jacobs Engineering Group Inc. (NYSE:J) It Looks Like You'll Get What You Pay For

Simply Wall St

With a price-to-earnings (or "P/E") ratio of 67.3x Jacobs Engineering Group Inc. (NYSE:J) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times haven't been advantageous for Jacobs Engineering Group as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Jacobs Engineering Group

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

What Are Growth Metrics Telling Us About The High P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 17%. As a result, earnings from three years ago have also fallen 28% overall. 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 demonstrate the company's robustness, generating growth of 239% as estimated by the eleven analysts watching the company. That would be an excellent outcome when the market is expected to decline by 7.1%.

With this information, we can see why Jacobs Engineering Group is trading at such a high P/E compared to the market. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader market going backwards.

What We Can Learn From Jacobs Engineering Group's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Jacobs Engineering Group's analyst forecasts revealed that its superior earnings outlook against a shaky market is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We still remain cautious about the company's ability to keep swimming against the current of the broader market turmoil. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Jacobs Engineering Group (1 makes us a bit uncomfortable!) that we have uncovered.

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.