Investors Still Waiting For A Pull Back In SiteOne Landscape Supply, Inc. (NYSE:SITE)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider SiteOne Landscape Supply, Inc. (NYSE:SITE) as a stock to avoid entirely with its 43.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, SiteOne Landscape Supply has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for SiteOne Landscape Supply

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

How Is SiteOne Landscape Supply's Growth Trending?

SiteOne Landscape Supply's 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 a frustrating 30% decrease to the company's bottom line. Even so, admirably EPS has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 14% per annum over the next three years. 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 SiteOne Landscape Supply is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On SiteOne Landscape Supply's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of SiteOne Landscape Supply'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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for SiteOne Landscape Supply that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.