NASDAQ:STMP) price-to-earnings (or "P/E") ratio of 36.4x 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 18x and even P/E’s below 10x 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.” data-reactid=”28″>Stamps.com Inc.’s (NASDAQ:STMP) price-to-earnings (or “P/E”) ratio of 36.4x 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 18x and even P/E’s below 10x 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.
Stamps.com’s negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. If not, then existing shareholders may be a little nervous about the viability of the share price.
See our latest analysis for Stamps.com ” data-reactid=”30″> See our latest analysis for Stamps.com
free report on Stamps.com will help you uncover what’s on the horizon.” data-reactid=”47″>Want the full picture on analyst estimates for the company? Then our free report on Stamps.com will help you uncover what’s on the horizon.
Is There Enough Growth For Stamps.com?
The only time you’d be truly comfortable seeing a P/E as steep as Stamps.com’s is when the company’s growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 4.1%. As a result, earnings from three years ago have also fallen 13% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 1.0% over the next year. Meanwhile, the broader market is forecast to expand by 5.2%, which paints a poor picture.
In light of this, it’s alarming that Stamps.com’s P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company’s business prospects, but the analyst cohort is not so confident this will happen. There’s a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.
The Bottom Line On Stamps.com’s P/E
While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.
Our examination of Stamps.com’s analyst forecasts revealed that its outlook for shrinking earnings isn’t impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it’s very challenging to accept these prices as being reasonable.
2 warning signs for Stamps.com that you need to be mindful of.” data-reactid=”56″>We don’t want to rain on the parade too much, but we did also find 2 warning signs for Stamps.com that you need to be mindful of.
our interactive list of high quality stocks to get an idea of what else is out there.” data-reactid=”57″>If these risks are making you reconsider your opinion on Stamps.com, explore our interactive list of high quality stocks to get an idea of what else is out there.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.
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