Comfort Systems USA, Inc. (NYSE:FIX) Shares May Have Slumped 30% But Getting In Cheap Is Still Unlikely

Comfort Systems USA, Inc. (NYSE:FIX) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The last month has meant the stock is now only up 4.6% during the last year.

In spite of the heavy fall in price, Comfort Systems USA's price-to-earnings (or "P/E") ratio of 22x might still make it look like a 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 10x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Comfort Systems USA has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Comfort Systems USA

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Is There Enough Growth For Comfort Systems USA?

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

If we review the last year of earnings growth, the company posted a terrific increase of 62%. The latest three year period has also seen an excellent 273% overall rise in EPS, aided by its 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 12% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is not materially different.

With this information, we find it interesting that Comfort Systems USA 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. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

There's still some solid strength behind Comfort Systems USA's P/E, if not its share price lately. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Comfort Systems USA currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Comfort Systems USA with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Comfort Systems USA, 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.