PC Connection, Inc.'s (NASDAQ:CNXN) price-to-earnings (or "P/E") ratio of 22.3x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
PC Connection 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.
NasdaqGS:CNXN Price to Earnings Ratio vs Industry August 2nd 2024 Want the full picture on analyst estimates for the company? Then our free report on PC Connection will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The High P/E?
There's an inherent assumption that a company should outperform the market for P/E ratios like PC Connection's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. The latest three year period has also seen an excellent 45% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 8.6% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 14%, which is noticeably more attractive.
In light of this, it's alarming that PC Connection's P/E sits above the majority of other companies. 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.
The Bottom Line On PC Connection's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that PC Connection currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for PC Connection that you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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PC Connection公司(纳斯达克股票代码:CNXN)目前的市盈率为22.3倍,可能与美国市场中大约一半的公司市盈率低于17倍,甚至低于10倍的市盈率非常普遍相比,看起来卖出。然而,市盈率可能之所以高,是有原因的,需要进一步调查以判断是否合理。
PC Connection最近确实做得很好,因为其收益增长保持为正向,而大多数其他公司则看到其收益在倒退。市盈率可能很高,因为投资者认为该公司将比大部分公司更好地应对更广泛的市场风险。否则,现有股东可能会对股价的可行性有些紧张。