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 IDACORP, Inc.'s (NYSE:IDA) P/E ratio of 17.5x.  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, IDACORP 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.    

NYSE:IDA Price to Earnings Ratio vs Industry April 13th 2024

If you'd like to see what analysts are forecasting going forward, you should check out our free report on IDACORP.

What Are Growth Metrics Telling Us About The P/E?  

There's an inherent assumption that a company should be matching the market for P/E ratios like IDACORP's to be considered reasonable.  

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before.   Still, the latest three year period was better as it's delivered a decent 9.8% overall rise in EPS.  So it appears to us that the company has had a mixed result in terms of growing earnings over that time.  

Turning to the outlook, the next three years should generate growth of 5.6%  per year as estimated by the six analysts watching the company.  That's shaping up to be materially lower than the 10% per annum growth forecast for the broader market.

With this information, we find it interesting that IDACORP 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 Bottom Line On IDACORP's 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.

We've established that IDACORP currently trades on a higher than expected P/E since its forecast growth is lower than the wider market.  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.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for IDACORP (1 makes us a bit uncomfortable!) 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.