CRA International, Inc. (NASDAQ:CRAI) Not Lagging Market On Growth Or Pricing

With a price-to-earnings (or "P/E") ratio of 26.7x CRA International, Inc. (NASDAQ:CRAI) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, CRA International has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for CRA International

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

How Is CRA International's Growth Trending?

In order to justify its P/E ratio, CRA International would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 5.8% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 32% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 18% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

With this information, we can see why CRA International 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 Final Word

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.

As we suspected, our examination of CRA International'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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for CRA International with six simple checks.

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.