DoubleVerify Holdings, Inc. (NYSE:DV) shares have had a horrible month, losing 26% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 17% in the last year.
Even after such a large drop in price, DoubleVerify Holdings may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 73.9x, since almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
DoubleVerify Holdings 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. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
NYSE:DV Price to Earnings Ratio vs Industry March 5th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on DoubleVerify Holdings.
What Are Growth Metrics Telling Us About The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like DoubleVerify Holdings' to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 61% last year. Pleasingly, EPS has also lifted 182% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 20% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 11% per annum, which is noticeably less attractive.
In light of this, it's understandable that DoubleVerify Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From DoubleVerify Holdings' P/E?
A significant share price dive has done very little to deflate DoubleVerify Holdings' very lofty P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of DoubleVerify Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
We don't want to rain on the parade too much, but we did also find 1 warning sign for DoubleVerify Holdings that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.