BWX Technologies, Inc.'s (NYSE:BWXT) Share Price Not Quite Adding Up

BWX Technologies, Inc.'s (NYSE:BWXT) price-to-earnings (or "P/E") ratio of 33.2x 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 16x 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.

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Recent times have been advantageous for BWX Technologies as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for BWX Technologies

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

Is There Enough Growth For BWX Technologies?

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

Retrospectively, the last year delivered a decent 15% gain to the company's bottom line. Still, lamentably EPS has fallen 4.9% in aggregate from three years ago, which is disappointing. 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 13% during the coming year according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 13%, which is not materially different.

With this information, we find it interesting that BWX Technologies is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From BWX Technologies' P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that BWX Technologies currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for BWX Technologies that you need to take into consideration.

If these risks are making you reconsider your opinion on BWX Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.