SiteOne Landscape Supply, Inc. (NYSE:SITE) Not Lagging Market On Growth Or Pricing

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider SiteOne Landscape Supply, Inc. (NYSE:SITE) as a stock to avoid entirely with its 44.5x 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 so lofty.

While the market has experienced earnings growth lately, SiteOne Landscape Supply's earnings have gone into reverse gear, which is not great. It might be that many expect the dour 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.

See our latest analysis for SiteOne Landscape Supply

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Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as SiteOne Landscape Supply's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% per annum during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that SiteOne Landscape Supply's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On SiteOne Landscape Supply'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.

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. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for SiteOne Landscape Supply 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.