The Brinker International, Inc. (NYSE:EAT) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Brinker International's P/E ratio of 17.2x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Brinker International as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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.

Does Growth Match The P/E?

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

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 1,943% in total over the last three years. 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 13% per 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 9.9% per year, which is noticeably less attractive.

With this information, we find it interesting that Brinker International is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Brinker International's P/E

Its shares have lifted substantially and now Brinker International's P/E is also back up to the market median. 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.

We've established that Brinker International currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Brinker International, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Brinker International. 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.