It's not a stretch to say that Pinnacle West Capital Corporation's (NYSE:PNW) price-to-earnings (or "P/E") ratio of 17.5x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Recent times have been pleasing for Pinnacle West Capital as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pinnacle West Capital.
Is There Some Growth For Pinnacle West Capital?
Pinnacle West Capital's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
If we review the last year of earnings growth, the company posted a worthy increase of 12%. However, this wasn't enough as the latest three year period has seen an unpleasant 6.9% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 5.5% each year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 10% per year, which is noticeably more attractive.
With this information, we find it interesting that Pinnacle West Capital is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be 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 Pinnacle West Capital's P/E?
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Pinnacle West Capital currently trades on a 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 moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
Before you settle on your opinion, we've discovered 2 warning signs for Pinnacle West Capital (1 makes us a bit uncomfortable!) that you should be aware of.
Of course, you might also be able to find a better stock than Pinnacle West Capital. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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可以說Pinnacle West Capital Corporation(NYSE:PNW)當前的市盈率17.5倍與美國市場上中位數約17倍相比,似乎相當“普通”。然而,如果沒有理性基礎,投資者可能會忽略明顯的機會或潛在的挫折。
儘管市場利潤率逆轉,但最近一段時間對於Pinnacle West Capital來說仍令人滿意,因爲其收益增加了。一種可能性是,市盈率適中,因爲投資者認爲該公司未來的收益將更加脆弱。如果不是這樣,那麼現有股東應該對股價未來的方向感到樂觀。
如果您想看看分析師們對Pinnacle West Capital的預測,請查看我們的免費報告。
Pinnacle West Capital還有一些成長空間嗎?
對於一個只預計實現適度增長並與市場表現相符的公司來說,Pinnacle West Capital的市盈率是典型的。