Worthington Enterprises, Inc. (NYSE:WOR) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Worthington Enterprises, Inc. (NYSE:WOR) shares have continued their recent momentum with a 27% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 2.3% isn't as impressive.

Since its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Worthington Enterprises as a stock to avoid entirely with its 49.2x 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.

We've discovered 2 warning signs about Worthington Enterprises. View them for free.

Worthington Enterprises hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

Check out our latest analysis for Worthington Enterprises

Want the full picture on analyst estimates for the company? Then our free report on Worthington Enterprises will help you uncover what's on the horizon.

How Is Worthington Enterprises' Growth Trending?

Worthington Enterprises' 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.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 43%. This means it has also seen a slide in earnings over the longer-term as EPS is down 85% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 147% over the next year. With the market only predicted to deliver 13%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Worthington Enterprises' 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 Key Takeaway

Worthington Enterprises' P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Worthington Enterprises 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. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Worthington Enterprises that you should be aware of.

You might be able to find a better investment than Worthington Enterprises. 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.