Evercore Inc.'s (NYSE:EVR) price-to-earnings (or "P/E") ratio of 27.6x might make it look like a strong 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.  Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.  

Evercore has been struggling lately as its earnings have declined faster than most other companies.   One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.    

NYSE:EVR Price to Earnings Ratio vs Industry April 26th 2024

Keen to find out how analysts think Evercore's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?  

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%.   As a result, earnings from three years ago have also fallen 41% overall.  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 28%  per year as estimated by the eight analysts watching the company.  That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.

In light of this, it's understandable that Evercore's P/E sits above the majority of other companies.  Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.  

The Bottom Line On Evercore's P/E

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.

As we suspected, our examination of Evercore's 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.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Evercore that you need to be mindful of.  

If you're unsure about the strength of Evercore's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.