Investors Interested In WEX Inc.'s (NYSE:WEX) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider WEX Inc. (NYSE:WEX) as a stock to avoid entirely with its 30.8x 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 so lofty.

With earnings growth that's superior to most other companies of late, WEX has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for WEX

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

Is There Enough Growth For WEX?

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

Retrospectively, the last year delivered an exceptional 177% gain to the company's bottom line. The latest three year period has also seen an excellent 513% 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.

Looking ahead now, EPS is anticipated to climb by 40% during the coming year according to the analysts following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader market.

In light of this, it's understandable that WEX's 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 WEX'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.

As we suspected, our examination of WEX's 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for WEX with six simple checks on some of these key factors.

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.