With roughly half of U.S. companies trading at a price-to-earnings (or “P/E”) ratio below 16, it's fair to consider Performance Food Group Company (NYSE: PFGC), with a P/E ratio of 25.8, a stock to avoid entirely. That said, we need to dig a little deeper to determine whether there's a rational basis for the sky-high P/E.
Performance Food Group has been performing well recently, with positive earnings growth at a time when most other companies are seeing earnings decline. The high price-to-earnings multiple is likely because investors believe the company will continue to weather market headwinds better than most other companies. If not, existing shareholders may be a bit nervous about the viability of the share price.
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NYSE:PFGC Price to Earnings Ratio vs. Industry June 10, 2024 Want the full picture of analyst forecasts for the company? Our free report on Performance Food Group can help shed light on what the future holds.
NYSE:PFGC Price to Earnings Ratio vs. Industry June 10, 2024 Want the full picture of analyst forecasts for the company? Our free report on Performance Food Group can help shed light on what the future holds. Is growth justifying the high P/E?
Performance Food Group's P/E ratio is typical for a company that is expected to grow very strongly and, more importantly, perform much better than the market.
Looking back, the company did surprisingly well last year, growing its earnings per share by 30%. However, the last three years have seen no growth at all, and overall not much progress. Therefore, it's fair to say that the company's recent earnings growth has been shaky.
Looking ahead, the 12 analysts who follow the company expect EPS to grow 35% over the next year, which would be significantly better than the overall market forecast of 13% growth.
With this in mind, it's no surprise that Performance Food Group's P/E is higher than most other companies, as most investors are betting on this strong future growth and are likely prepared to pay more for the stock.
Conclusion on Performance Food Group's stock price/earnings ratio
While it would be unwise to use the price-to-earnings ratio alone to decide whether or not you should sell a stock, it can be a practical indicator of a company's future prospects.
Performance We found that Food Group is maintaining a high P/E ratio, driven by growth forecasts that are higher than the overall market, as expected. At the moment, investors feel that the potential for earnings decline is not large enough to justify a lower P/E ratio. In this situation, it is unlikely that the share price will fall significantly in the near future.
Before you take the next step, you should be aware of the 1 warning sign we've spotted with Performance Food Group.
If you're not convinced about the strength of Performance Food Group's business, why not check out this interactive list of other companies with solid business fundamentals you might be missing out on.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
