Optex Systems Holdings, Inc (NASDAQ:OPXS) shares have continued their recent momentum with a 49% gain in the last month alone. The last month tops off a massive increase of 122% in the last year.
After such a large jump in price, Optex Systems Holdings may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.3x, since 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 high for a reason and it requires further investigation to determine if it's justified.
Optex Systems Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Optex Systems Holdings
NasdaqCM:OPXS Price to Earnings Ratio vs Industry January 1st 2024
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Optex Systems Holdings' earnings, revenue and cash flow.
How Is Optex Systems Holdings' Growth Trending?
In order to justify its P/E ratio, Optex Systems Holdings would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 118% last year. The latest three year period has also seen an excellent 134% 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.
Comparing that to the market, which is only predicted to deliver 10% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we can see why Optex Systems Holdings is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Key Takeaway
The large bounce in Optex Systems Holdings' shares has lifted the company's P/E to a fairly high level. 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 Optex Systems Holdings maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Optex Systems Holdings (1 makes us a bit uncomfortable!) that you need to be mindful of.
You might be able to find a better investment than Optex Systems Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
