Investors Appear Satisfied With SNC-Lavalin Group Inc.'s (TSE:ATRL) Prospects

SNC-Lavalin Group Inc.'s (TSE:ATRL) price-to-earnings (or "P/E") ratio of 51.9x might make it look like a strong sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 12x and even P/E's below 5x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

SNC-Lavalin Group 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for SNC-Lavalin Group

Keen to find out how analysts think SNC-Lavalin Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For SNC-Lavalin Group?

There's an inherent assumption that a company should far outperform the market for P/E ratios like SNC-Lavalin Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 157% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 92% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 66% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 5.8% per year growth forecast for the broader market.

With this information, we can see why SNC-Lavalin Group 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

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of SNC-Lavalin Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - SNC-Lavalin Group has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.