Market Participants Recognise Williams Industrial Services Group Inc.'s (NYSEMKT:WLMS) Earnings Pushing Shares 33% Higher

Williams Industrial Services Group Inc. (NYSEMKT:WLMS) shareholders have had their patience rewarded with a 33% share price jump in the last month. The annual gain comes to 296% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Williams Industrial Services Group's price-to-earnings (or "P/E") ratio of 52.5x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 22x and even P/E's below 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Williams Industrial Services Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Williams Industrial Services Group

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Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Williams Industrial Services Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 55%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 246% during the coming year according to the twin analysts following the company. With the market only predicted to deliver 20%, the company is positioned for a stronger earnings result.

With this information, we can see why Williams Industrial Services Group 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 Williams Industrial Services Group's P/E

Shares in Williams Industrial Services Group have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that Williams Industrial Services Group 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.

Plus, you should also learn about these 5 warning signs we've spotted with Williams Industrial Services Group (including 1 which doesn't sit too well with us).

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 P/E ratio below 20x).

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