Maximus, Inc.'s (NYSE:MMS) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Maximus, Inc. (NYSE:MMS) as a stock to potentially avoid with its 22.6x P/E ratio. 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.

Maximus certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 Maximus

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

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 36%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 12% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Maximus' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Maximus' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Maximus maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

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

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