With a median price-to-earnings (or “P/E”) ratio of close to 17x in the United States, you could be forgiven for feeling indifferent about Robert Half International Inc.’s (NYSE:RHI) P/E ratio of 16.3x. Although, it’s not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Recent times haven’t been advantageous for Robert Half International as its earnings have been falling quicker than most other companies. One possibility is that the P/E is moderate because investors think the company’s earnings trend will eventually fall in line with most others in the market. If you still like the company, you’d want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.free report on Robert Half International.
How Is Robert Half International’s Growth Trending?
In order to justify its P/E ratio, Robert Half International would need to produce growth that’s similar to the market.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 16%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 24% overall rise in EPS. Although it’s been a bumpy ride, it’s still fair to say the earnings growth recently has been mostly respectable for the company.
Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 3.9% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is noticeably more attractive.
With this information, we find it interesting that Robert Half International is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.
The Final Word
Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Robert Half International’s analyst forecasts revealed that its inferior earnings outlook isn’t impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren’t likely to support a more positive sentiment for long. Unless these conditions improve, it’s challenging to accept these prices as being reasonable.
A lot of potential risks can sit within a company’s balance sheet. You can assess many of the main risks through our free balance sheet analysis for Robert Half International with six simple checks.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E’s below 20x.
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This article by Simply Wall St is general in nature. 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.
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