Investors Interested In Gildan Activewear Inc.'s (TSE:GIL) Earnings
When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 15x, you may consider Gildan Activewear Inc. (TSE:GIL) as a stock to potentially avoid with its 18.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.
Recent times haven't been advantageous for Gildan Activewear as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Gildan Activewear
How Is Gildan Activewear's Growth Trending?
Gildan Activewear's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 10%. Even so, admirably EPS has lifted 41% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Looking ahead now, EPS is anticipated to climb by 17% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10.0% per annum, which is noticeably less attractive.
In light of this, it's understandable that Gildan Activewear's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Gildan Activewear's 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 Gildan Activewear'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. Unless these conditions change, they will continue to provide strong support to the share price.
It is also worth noting that we have found 3 warning signs for Gildan Activewear that you need to take into consideration.
You might be able to find a better investment than Gildan Activewear. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
About TSX:GIL
Gildan Activewear
Manufactures and sells various apparel products in the United States, North America, Europe, Asia-Pacific, and Latin America.
Undervalued with adequate balance sheet.
