ICF International, Inc.'s (NASDAQ:ICFI) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

The ICF International, Inc. (NASDAQ:ICFI) share price has fared very poorly over the last month, falling by a substantial 25%. The recent drop has obliterated the annual return, with the share price now down 5.6% over that longer period.

Although its price has dipped substantially, ICF International may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.8x, since almost half of all companies in the United States have P/E ratios under 19x and even P/E's lower than 11x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been advantageous for ICF International as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for ICF International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ICF International.

Does Growth Match The High P/E?

ICF International's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. The latest three year period has also seen an excellent 51% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 13% over the next year. Meanwhile, the rest of the market is forecast to expand by 15%, which is noticeably more attractive.

With this information, we find it concerning that ICF International is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

There's still some solid strength behind ICF International's P/E, if not its share price lately. 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.

We've established that ICF International currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 1 warning sign for ICF International that you should be aware of.

You might be able to find a better investment than ICF International. 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.