Comfort Systems USA, Inc.'s (NYSE:FIX) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Comfort Systems USA, Inc. (NYSE:FIX) as a stock to avoid entirely with its 31.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Comfort Systems USA as its earnings have risen in spite of the market's earnings going into reverse. 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. 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

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

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 68% last year. The strong recent performance means it was also able to grow EPS by 133% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the four analysts following the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Comfort Systems USA is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Comfort Systems USA's 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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Comfort Systems USA you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com