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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 22x, you may consider Williams Industrial Services Group Inc. (NYSEMKT:WLMS) as a stock to avoid entirely with its 48.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Williams Industrial Services Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Williams Industrial Services Group's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Williams Industrial Services Group's Growth Trending?
Williams Industrial Services Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
If we review the last year of earnings growth, the company posted a terrific increase of 55%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 246% during the coming year according to the twin analysts following the company. With the market only predicted to deliver 21%, the company is positioned for a stronger earnings result.
With this information, we can see why Williams Industrial Services Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Williams Industrial Services Group'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 Williams Industrial Services Group 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. Unless these conditions change, they will continue to provide strong support to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Williams Industrial Services Group (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
If you're unsure about the strength of Williams Industrial Services Group'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.
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