When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider FLEETCOR Technologies, Inc. (NYSE:FLT) as a stock to potentially avoid with its 21.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
Recent times have been pleasing for FLEETCOR Technologies as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for FLEETCOR Technologies
How Is FLEETCOR Technologies' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as high as FLEETCOR Technologies' is when the company's growth is on track to outshine the market.
If we review the last year of earnings growth, the company posted a worthy increase of 4.7%. This was backed up an excellent period prior to see EPS up by 53% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 16% as estimated by the analysts watching the company. That's shaping up to be materially higher than the 9.9% growth forecast for the broader market.
With this information, we can see why FLEETCOR Technologies is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
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.
We've established that FLEETCOR Technologies maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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 these conditions change, they will continue to provide strong support to the share price.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for FLEETCOR Technologies that you should be aware of.
Of course, you might also be able to find a better stock than FLEETCOR Technologies. 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.