John Bean Technologies Corporation's (NYSE:JBT) price-to-earnings (or "P/E") ratio of 24.1x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.
Recent times have been advantageous for John Bean Technologies as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for John Bean Technologies
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, John Bean Technologies would need to produce impressive growth in excess of the market.
If we review the last year of earnings growth, the company posted a terrific increase of 30%. The latest three year period has also seen a 11% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Turning to the outlook, the next three years should generate growth of 23% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader market.
With this information, we can see why John Bean Technologies is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On John Bean Technologies' P/E
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 John Bean Technologies' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for John Bean Technologies with six simple checks will allow you to discover any risks that could be an issue.
If these risks are making you reconsider your opinion on John Bean Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.