With a median price-to-earnings (or "P/E") ratio of close to 17x in the United States, you could be forgiven for feeling indifferent about Pinnacle West Capital Corporation's (NYSE:PNW) P/E ratio of 18.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Pinnacle West Capital certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Pinnacle West Capital will help you uncover what's on the horizon.
Does Growth Match The P/E?
The only time you'd be comfortable seeing a P/E like Pinnacle West Capital's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.5% last year. Still, lamentably EPS has fallen 17% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 6.0% per annum as estimated by the nine analysts watching the company. With the market predicted to deliver 10% growth per year, the company is positioned for a weaker earnings result.
With this information, we find it interesting that Pinnacle West Capital is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Key Takeaway
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.
Our examination of Pinnacle West Capital's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
You should always think about risks. Case in point, we've spotted 3 warning signs for Pinnacle West Capital you should be aware of, and 1 of them is a bit unpleasant.
If you're unsure about the strength of Pinnacle West Capital's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
由于美国的市盈率中位数(或 “市盈率”)接近17倍,你对Pinnacle West Capital Corporation(纽约证券交易所代码:PNW)18.4倍的市盈率漠不关心,这是可以原谅的。但是,如果市盈率没有合理的基础,投资者可能会忽略明显的机会或潜在的挫折。
Pinnacle West Capital最近确实做得很好,因为其收益增长是正的,而大多数其他公司的收益却在倒退。许多人可能预计,强劲的收益表现将像其他人一样恶化,这阻碍了市盈率的上升。如果不是,那么现有股东就有理由对股价的未来走向感到乐观。
想全面了解分析师对公司的估计吗?那么我们关于Pinnacle West Capital的免费报告将帮助您发现即将发生的事情。
增长与市盈率相匹配吗?
你唯一能放心地看到像Pinnacle West Capital这样的市盈率是公司的增长密切关注市场的时候。