Potential Upside For Marriott Vacations Worldwide Corporation (NYSE:VAC) Not Without Risk

With a price-to-earnings (or "P/E") ratio of 13.5x Marriott Vacations Worldwide Corporation (NYSE:VAC) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Marriott Vacations Worldwide has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Marriott Vacations Worldwide

Keen to find out how analysts think Marriott Vacations Worldwide's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Marriott Vacations Worldwide?

In order to justify its P/E ratio, Marriott Vacations Worldwide would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 10% as estimated by the nine analysts watching the company. With the market predicted to deliver 11% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Marriott Vacations Worldwide's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Marriott Vacations Worldwide's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Marriott Vacations Worldwide's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You need to take note of risks, for example - Marriott Vacations Worldwide has 3 warning signs (and 1 which is potentially serious) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.