The New York Times Company's (NYSE:NYT) Popularity With Investors Is Clear
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With a price-to-earnings (or "P/E") ratio of 50.6x The New York Times Company (NYSE:NYT) 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 16x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
New York Times has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.
Check out our latest analysis for New York Times
Where Does New York Times' P/E Sit Within Its Industry?
An inspection of average P/E's throughout New York Times' industry may help to explain its particularly high P/E ratio. It turns out the Media industry in general has a P/E ratio lower than the market, as the graphic below shows. So we'd say there is practically no merit in the premise that the company's ratio being shaped by its industry at this time. Some industry P/E's don't move around a lot and right now most companies within the Media industry should be getting stifled. Ultimately though, it's going to be the fundamentals of the business like earnings and growth that count most.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on New York Times will help you shine a light on its historical performance.
Does Growth Match The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like New York Times' to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.9% last year. The latest three year period has also seen an excellent 162% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
In contrast to the company, the rest of the market is expected to decline by 11% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.
With this information, we can see why New York Times is trading at a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.
The Final Word
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that New York Times maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader market turmoil. Otherwise, it's hard to see the share price falling strongly in the near future if its earnings performance persists.
Before you settle on your opinion, we've discovered 1 warning sign for New York Times that you should be aware of.
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.
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