Shareholders Should Be Pleased With Booking Holdings Inc.'s (NASDAQ:BKNG) Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Booking Holdings Inc. (NASDAQ:BKNG) as a stock to potentially avoid with its 25.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Booking Holdings 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. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Booking Holdings

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

How Is Booking Holdings' Growth Trending?

In order to justify its P/E ratio, Booking Holdings would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. The latest three year period has also seen an excellent 1,385% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 19% per annum over the next three years. 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 Booking Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Booking Holdings' P/E

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.

As we suspected, our examination of Booking Holdings' 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 Booking Holdings is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.