Dycom Industries, Inc. (NYSE:DY) Not Lagging Market On Growth Or Pricing

Explore Dycom Industries's Fair Values from the Community and select yours

With a price-to-earnings (or "P/E") ratio of 34.9x Dycom Industries, Inc. (NYSE:DY) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 11x are not unusual. 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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With earnings growth that's inferior to most other companies of late, Dycom Industries has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Dycom Industries

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

What Are Growth Metrics Telling Us About The High P/E?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Still, the latest three year period has seen an excellent 259% overall rise in EPS, in spite of its uninspiring short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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 annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Dycom Industries' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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 Dycom Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Dycom Industries that you need to be mindful of.

If these risks are making you reconsider your opinion on Dycom Industries, 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.