Mueller Water Products, Inc.'s (NYSE:MWA) 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 17x, you may consider Mueller Water Products, Inc. (NYSE:MWA) as a stock to potentially avoid with its 24.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been pleasing for Mueller Water Products as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. 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?

The only time you'd be truly comfortable seeing a P/E as high as Mueller Water Products' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 64%. Pleasingly, EPS has also lifted 59% in aggregate from three years ago, thanks to the last 12 months of growth. 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 33% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15%, which is noticeably less attractive.

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 Final Word

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 Mueller Water Products' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Mueller Water Products with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Mueller Water Products' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.