Gibraltar Industries, Inc.'s (NASDAQ:ROCK) P/E Is On The Mark

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Gibraltar Industries, Inc. (NASDAQ:ROCK) as a stock to potentially avoid with its 19.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Gibraltar Industries 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 Gibraltar Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gibraltar Industries.

Is There Enough Growth For Gibraltar Industries?

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

If we review the last year of earnings growth, the company posted a terrific increase of 34%. Pleasingly, EPS has also lifted 46% 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.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 28% over the next year. With the market only predicted to deliver 12%, the company is positioned for a stronger earnings result.

With this information, we can see why Gibraltar 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 Gibraltar Industries' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Gibraltar 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Gibraltar Industries with six simple checks will allow you to discover any risks that could be an issue.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com