NYSE:KEYS) price-to-earnings (or "P/E") ratio of 33.3x 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 19x 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″>Keysight Technologies, Inc.’s (NYSE:KEYS) price-to-earnings (or “P/E”) ratio of 33.3x 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 19x 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Keysight Technologies has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Keysight Technologies ” data-reactid=”30″> Check out our latest analysis for Keysight Technologies
free report on Keysight Technologies.” data-reactid=”47″>If you’d like to see what analysts are forecasting going forward, you should check out our free report on Keysight Technologies.
Is There Enough Growth For Keysight Technologies?
Keysight Technologies’ P/E ratio would be typical for a company that’s expected to deliver very strong growth, and importantly, perform much better than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 114% last year. Pleasingly, EPS has also lifted 57% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 2.2% as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 4.2%, which is noticeably more attractive.
In light of this, it’s alarming that Keysight Technologies’ 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 good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Key Takeaway
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Keysight Technologies’ analyst forecasts revealed that its inferior earnings outlook 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 aren’t likely 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 Keysight Technologies that you should be aware of.” data-reactid=”56″>Don’t forget that there may be other risks. For instance, we’ve identified 2 warning signs for Keysight Technologies that you should be aware of.
collection of other companies that sit on P/E’s below 20x and have grown earnings strongly.” data-reactid=”57″>Of course, you might also be able to find a better stock than Keysight Technologies. So you may wish to see this free collection of other companies that sit on P/E’s below 20x and have grown earnings strongly.
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.