Emera Incorporated's (TSE:EMA) Share Price Matching Investor Opinion

Emera Incorporated's (TSE:EMA) price-to-earnings (or "P/E") ratio of 37x 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 15x and even P/E's below 7x 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.

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Emera could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Emera

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

How Is Emera's Growth Trending?

Emera's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 52% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 16% 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 27% each year during the coming three years according to the ten analysts following the company. With the market only predicted to deliver 12% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Emera 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 Bottom Line On Emera's P/E

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.

We've established that Emera maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Emera (2 are concerning!) that we have uncovered.

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.