Lincoln Educational Services Corporation (NASDAQ:LINC) Stocks Shoot Up 25% But Its P/E Still Looks Reasonable

Lincoln Educational Services Corporation (NASDAQ:LINC) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 37%.

Following the firm bounce in price, Lincoln Educational Services may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 49.9x, since almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Recent times have been advantageous for Lincoln Educational Services as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Lincoln Educational Services

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

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. Still, incredibly EPS has fallen 46% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 60% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader market.

With this information, we can see why Lincoln Educational Services is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Lincoln Educational Services' P/E rushing to great heights as well. 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.

We've established that Lincoln Educational Services 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. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Lincoln Educational Services that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.