Dycom Industries, Inc. (NYSE:DY) Looks Just Right With A 26% Price Jump

Dycom Industries, Inc. (NYSE:DY) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 29%.

Following the firm bounce in price, given around half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Dycom Industries as a stock to potentially avoid with its 23.7x 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.

We've discovered 1 warning sign about Dycom Industries. View them for free.

Recent times have been advantageous for Dycom Industries 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Dycom Industries

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

How Is Dycom Industries' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Dycom Industries' is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.4% last year. Pleasingly, EPS has also lifted 407% in aggregate from three years ago, partly 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.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the nine analysts watching the company. With the market only predicted to deliver 10% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Dycom Industries 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 Key Takeaway

Dycom Industries' P/E is getting right up there since its shares have risen strongly. 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 Dycom Industries' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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 1 warning sign for Dycom Industries that we have uncovered.

If you're unsure about the strength of Dycom Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.