Investors Appear Satisfied With Mueller Water Products, Inc.'s (NYSE:MWA) Prospects

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 19x, you may consider Mueller Water Products, Inc. (NYSE:MWA) as a stock to avoid entirely with its 33.6x 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.

Mueller Water Products certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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 Mueller Water Products

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

Does Growth Match The High P/E?

Mueller Water Products' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. The latest three year period has also seen an excellent 67% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 55% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

With this information, we can see why Mueller Water Products 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 Mueller Water Products' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Mueller Water Products 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.

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

You might be able to find a better investment than Mueller Water Products. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.