There's Reason For Concern Over FTI Consulting, Inc.'s (NYSE:FCN) Price

FTI Consulting, Inc.'s (NYSE:FCN) price-to-earnings (or "P/E") ratio of 28.9x 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 16x and even P/E's below 9x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, FTI Consulting 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.

View our latest analysis for FTI Consulting

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

Is There Enough Growth For FTI Consulting?

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

Retrospectively, the last year delivered a decent 6.7% gain to the company's bottom line. The latest three year period has also seen an excellent 36% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 9.9% as estimated by the three analysts watching the company. With the market predicted to deliver 10% growth , the company is positioned for a comparable earnings result.

With this information, we find it interesting that FTI Consulting is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of FTI Consulting's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for FTI Consulting that you need to be mindful of.

You might be able to find a better investment than FTI Consulting. 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.