Watsco, Inc.'s (NYSE:WSO) price-to-earnings (or "P/E") ratio of 28.5x 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Watsco certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for Watsco
NYSE:WSO Price to Earnings Ratio vs Industry December 19th 2023 Keen to find out how analysts think Watsco's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Watsco's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.1% last year. The latest three year period has also seen an excellent 120% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 7.2% per annum over the next three years. That's shaping up to be materially lower than the 12% per year growth forecast for the broader market.
With this information, we find it concerning that Watsco is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
What We Can Learn From Watsco's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Watsco's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Watsco 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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Watsco, Inc. '与美国市场相比,s(纽约证券交易所代码:WSO)28.5倍的市盈率(或 “市盈率”)可能使其目前看起来像是一个强劲的抛售。在美国市场,大约有一半的公司的市盈率低于16倍,甚至市盈率低于9倍也很常见。但是,市盈率之高可能是有原因的,需要进一步调查才能确定其是否合理。