Granite Construction Incorporated's (NYSE:GVA) price-to-earnings (or "P/E") ratio of 55.7x 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.
Recent times haven't been advantageous for Granite Construction as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Granite Construction
NYSE:GVA Price to Earnings Ratio vs Industry December 20th 2023 Want the full picture on analyst estimates for the company? Then our free report on Granite Construction will help you uncover what's on the horizon.
Does Growth Match The High P/E?
Granite Construction'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.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 15%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. 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 286% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.
With this information, we can see why Granite Construction is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Granite Construction 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.
Having said that, be aware Granite Construction is showing 1 warning sign in our investment analysis, you should know about.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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Granite Construction Incorporated(紐約證券交易所代碼:GVA)的市盈率(或 “市盈率”)爲55.7倍,與美國市場相比,目前可能看起來像強勁的拋售。在美國,約有一半的公司的市盈率低於16倍,甚至市盈率低於9倍也很常見。但是,市盈率可能相當高是有原因的,需要進一步調查以確定其是否合理。