Getting In Cheap On MillerKnoll, Inc. (NASDAQ:MLKN) Might Be Difficult

With a price-to-earnings (or "P/E") ratio of 26.2x MillerKnoll, Inc. (NASDAQ:MLKN) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 10x are not unusual. However, the P/E might be 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, MillerKnoll 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 MillerKnoll

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

Is There Enough Growth For MillerKnoll?

The only time you'd be truly comfortable seeing a P/E as high as MillerKnoll's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 99% gain to the company's bottom line. Still, incredibly EPS has fallen 61% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 73% during the coming year according to the four analysts following the company. With the market only predicted to deliver 14%, the company is positioned for a stronger earnings result.

With this information, we can see why MillerKnoll is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From MillerKnoll's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of MillerKnoll's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware MillerKnoll is showing 3 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than MillerKnoll. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com