A Rising Share Price Has Us Looking Closely At 1-800-FLOWERS.COM, Inc.'s (NASDAQ:FLWS) P/E Ratio

1-800-FLOWERS.COM (NASDAQ:FLWS) shares have had a really impressive month, gaining 42%, after some slippage. But shareholders may not all be feeling jubilant, since the share price is still down 11% in the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.

See our latest analysis for 1-800-FLOWERS.COM

Does 1-800-FLOWERS.COM Have A Relatively High Or Low P/E For Its Industry?

1-800-FLOWERS.COM's P/E of 28.16 indicates some degree of optimism towards the stock. As you can see below, 1-800-FLOWERS.COM has a higher P/E than the average company (22.6) in the online retail industry.

Its relatively high P/E ratio indicates that 1-800-FLOWERS.COM shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Most would be impressed by 1-800-FLOWERS.COM earnings growth of 22% in the last year. And its annual EPS growth rate over 3 years is 17%. This could arguably justify a relatively high P/E ratio.

Remember: P/E Ratios Don't Consider The Balance Sheet

It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

How Does 1-800-FLOWERS.COM's Debt Impact Its P/E Ratio?

With net cash of US$201m, 1-800-FLOWERS.COM has a very strong balance sheet, which may be important for its business. Having said that, at 17% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.

The Verdict On 1-800-FLOWERS.COM's P/E Ratio

1-800-FLOWERS.COM has a P/E of 28.2. That's higher than the average in its market, which is 14.3. Its net cash position supports a higher P/E ratio, as does its solid recent earnings growth. Therefore it seems reasonable that the market would have relatively high expectations of the company What we know for sure is that investors have become much more excited about 1-800-FLOWERS.COM recently, since they have pushed its P/E ratio from 19.9 to 28.2 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.

When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

You might be able to find a better buy than 1-800-FLOWERS.COM. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.