With a price-to-earnings (or “P/E”) ratio of 41.7x 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E’s lower than 9x are not unusual. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.
1-800-FLOWERS.COM 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.free report is a great place to start.
How Is 1-800-FLOWERS.COM’s Growth Trending?
There’s an inherent assumption that a company should far outperform the market for P/E ratios like 1-800-FLOWERS.COM’s to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 17%. Pleasingly, EPS has also lifted 66% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the six analysts covering the company suggest earnings growth will be highly resilient over the next year growing by 27%. That would be an excellent outcome when the market is expected to decline by 4.6%.
With this information, we can see why 1-800-FLOWERS.COM is trading at such a high P/E compared to the market. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader market going backwards.
The Bottom Line On 1-800-FLOWERS.COM’s P/E
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 1-800-FLOWERS.COM maintains its high P/E on the strength of its forecast growth potentially beating a struggling market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. We still remain cautious about the company’s ability to keep swimming against the current of the broader market turmoil. Although, if the company’s prospects don’t change they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we’ve spotted 1 warning sign for 1-800-FLOWERS.COM you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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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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