The Masonite International Corporation (NYSE:DOOR) share price has done very well over the last month, posting an excellent gain of 51%. The last 30 days bring the annual gain to a very sharp 45%.

Although its price has surged higher, it's still not a stretch to say that Masonite International's price-to-earnings (or "P/E") ratio of 17.9x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Masonite International has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Masonite International's Growth Trending?

The only time you'd be comfortable seeing a P/E like Masonite International's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 4.6% gain to the company's bottom line. Pleasingly, EPS has also lifted 312% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 14% as estimated by the ten analysts watching the company. That's shaping up to be similar to the 13% growth forecast for the broader market.

In light of this, it's understandable that Masonite International's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Masonite International appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

As we suspected, our examination of Masonite International's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Masonite International that you should be aware of.

Of course, you might also be able to find a better stock than Masonite International. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.