TETRA Technologies, Inc.'s (NYSE:TTI) 26% Jump Shows Its Popularity With Investors

TETRA Technologies, Inc. (NYSE:TTI) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 77%.

Since its price has surged higher, given around half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider TETRA Technologies as a stock to potentially avoid with its 25.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, TETRA Technologies has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for TETRA Technologies

Want the full picture on analyst estimates for the company? Then our free report on TETRA Technologies will help you uncover what's on the horizon.

Is There Enough Growth For TETRA Technologies?

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

Retrospectively, the last year delivered an exceptional 230% gain to the company's bottom line. EPS has also lifted 17% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 89% each year during the coming three years according to the five analysts following the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader market.

In light of this, it's understandable that TETRA Technologies' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On TETRA Technologies' P/E

The large bounce in TETRA Technologies' shares has lifted the company's P/E to a fairly high level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that TETRA Technologies 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for TETRA Technologies you should be aware of.

You might be able to find a better investment than TETRA Technologies. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.