Janus International Group, Inc. (NYSE:JBI) Could Be Riskier Than It Looks
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may consider Janus International Group, Inc. (NYSE:JBI) as an attractive investment with its 11x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With earnings growth that's superior to most other companies of late, Janus International Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
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Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Janus International Group's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 47% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the six analysts watching the company. That's shaping up to be similar to the 12% per year growth forecast for the broader market.
With this information, we find it odd that Janus International Group is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Key Takeaway
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.
Our examination of Janus International Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Janus International Group that you need to be mindful of.
If these risks are making you reconsider your opinion on Janus International Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
