With Boyd Group Services Inc. (TSE:BYD) It Looks Like You'll Get What You Pay For

With a price-to-earnings (or "P/E") ratio of 57.7x Boyd Group Services Inc. (TSE:BYD) may be sending very bearish signals at the moment, given that almost half of all companies in Canada have P/E ratios under 12x and even P/E's lower than 5x are not unusual. 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, Boyd Group Services has been doing quite well of late. 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 Boyd Group Services

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Is There Enough Growth For Boyd Group Services?

In order to justify its P/E ratio, Boyd Group Services would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 158% gain to the company's bottom line. Pleasingly, EPS has also lifted 104% 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.

Looking ahead now, EPS is anticipated to climb by 48% during the coming year according to the analysts following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader market.

With this information, we can see why Boyd Group Services 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.

What We Can Learn From Boyd Group Services' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Boyd Group Services' 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. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Boyd Group Services that you need to take into consideration.

If you're unsure about the strength of Boyd Group Services' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.