Some Shareholders Feeling Restless Over EVERTEC, Inc.'s (NYSE:EVTC) P/E Ratio
EVERTEC, Inc.'s (NYSE:EVTC) price-to-earnings (or "P/E") ratio of 26.9x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x 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 so lofty.
Recent times haven't been advantageous for EVERTEC 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for EVERTEC
If you'd like to see what analysts are forecasting going forward, you should check out our free report on EVERTEC.
How Is EVERTEC's Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like EVERTEC's to be considered reasonable.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 58%. Regardless, EPS has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.
Looking ahead now, EPS is anticipated to climb by 5.0% during the coming year according to the dual analysts following the company. That's shaping up to be materially lower than the 10% growth forecast for the broader market.
With this information, we find it concerning that EVERTEC is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.
The Bottom Line On EVERTEC's P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that EVERTEC currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Having said that, be aware EVERTEC is showing 2 warning signs in our investment analysis, 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 low P/E).
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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.
