Why Investors Shouldn't Be Surprised By Flowserve Corporation's (NYSE:FLS) P/E

With a price-to-earnings (or "P/E") ratio of 21.5x Flowserve Corporation (NYSE:FLS) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Flowserve 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.

View our latest analysis for Flowserve

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

How Is Flowserve's Growth Trending?

In order to justify its P/E ratio, Flowserve would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 191% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 66% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 18% over the next year. With the market only predicted to deliver 9.9%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Flowserve's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Flowserve's P/E

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.

We've established that Flowserve 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. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Flowserve (1 is significant!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Flowserve. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.