When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider SPX Technologies, Inc. (NYSE:SPXC) as a stock to avoid entirely with its 52x 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.
Recent times have been pleasing for SPX Technologies 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. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for SPX Technologies
How Is SPX Technologies' Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like SPX Technologies' to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 80% last year. The latest three year period has also seen a 13% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 116% as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.
In light of this, it's understandable that SPX Technologies' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that SPX Technologies 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.
You need to take note of risks, for example - SPX Technologies has 4 warning signs (and 2 which are a bit concerning) we think you should know about.
You might be able to find a better investment than SPX Technologies. 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.
About NYSE:SPXC
SPX Technologies
Supplies infrastructure equipment serving the heating, ventilation, and cooling (HVAC); and detection and measurement markets worldwide.
Solid track record with adequate balance sheet.
