Fortive Corporation's (NYSE:FTV) Share Price Matching Investor Opinion

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Fortive Corporation (NYSE:FTV) as a stock to avoid entirely with its 29.2x 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.

Fortive certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Fortive

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

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 12%. However, this wasn't enough as the latest three year period has seen an unpleasant 45% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader market.

With this information, we can see why Fortive 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 Bottom Line On Fortive's P/E

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.

As we suspected, our examination of Fortive'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. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Fortive with six simple checks will allow you to discover any risks that could be an issue.

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.