After Leaping 26% Green Thumb Industries Inc. (CSE:GTII) Shares Are Not Flying Under The Radar

Those holding Green Thumb Industries Inc. (CSE:GTII) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 50% share price decline over the last year.

After such a large jump in price, given around half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may consider Green Thumb Industries as a stock to potentially avoid with its 21.1x 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.

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Recent times have been advantageous for Green Thumb Industries as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Green Thumb Industries

Want the full picture on analyst estimates for the company? Then our free report on Green Thumb Industries will help you uncover what's on the horizon.

How Is Green Thumb Industries' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Green Thumb Industries' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 102% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 8.8% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader market.

With this information, we can see why Green Thumb Industries is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Green Thumb Industries' P/E?

The large bounce in Green Thumb Industries' shares has lifted the company's P/E to a fairly high level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Green Thumb Industries' 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Green Thumb Industries that you need to be mindful of.

You might be able to find a better investment than Green Thumb Industries. 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.