NYSE:FDX) price-to-earnings (or "P/E") ratio of 44.2x 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″>FedEx Corporation’s (NYSE:FDX) price-to-earnings (or “P/E”) ratio of 44.2x 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.
FedEx 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. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
View our latest analysis for FedEx ” data-reactid=”30″> View our latest analysis for FedEx
free report is a great place to start.” data-reactid=”47″>Keen to find out how analysts think FedEx’s future stacks up against the industry? In that case, our free report is a great place to start.
What Are Growth Metrics Telling Us About The High P/E?
The only time you’d be truly comfortable seeing a P/E as steep as FedEx’s is when the company’s growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered an exceptional 140% gain to the company’s bottom line. However, this wasn’t enough as the latest three year period has seen a very unpleasant 56% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 41% per year during the coming three years according to the analysts following the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.
With this information, we can see why FedEx is trading at such a high P/E compared to the market. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
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.
We’ve established that FedEx maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. It’s hard to see the share price falling strongly in the near future under these circumstances.
4 warning signs for FedEx that you should be aware of.” data-reactid=”56″>Don’t forget that there may be other risks. For instance, we’ve identified 4 warning signs for FedEx that you should be aware of.
our interactive list of stocks with solid business fundamentals for some other companies you may have missed.” data-reactid=”57″>If you’re unsure about the strength of FedEx’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.