Optimistic Investors Push Sterling Infrastructure, Inc. (NASDAQ:STRL) Shares Up 25% But Growth Is Lacking

Sterling Infrastructure, Inc. (NASDAQ:STRL) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last month tops off a massive increase of 152% in the last year.

Following the firm bounce in price, Sterling Infrastructure's price-to-earnings (or "P/E") ratio of 25.5x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Sterling Infrastructure 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. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Sterling Infrastructure

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

How Is Sterling Infrastructure's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 50% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 174% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 11% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 13%, which is not materially different.

In light of this, it's curious that Sterling Infrastructure's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Sterling Infrastructure's P/E

The strong share price surge has got Sterling Infrastructure's P/E rushing to great heights as well. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Sterling Infrastructure's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Sterling Infrastructure you should be aware of.

You might be able to find a better investment than Sterling Infrastructure. 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.