The Vita Coco Company, Inc.'s (NASDAQ:COCO) 25% Jump Shows Its Popularity With Investors

The Vita Coco Company, Inc. (NASDAQ:COCO) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

After such a large jump in price, Vita Coco Company may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 37.3x, since almost half of all companies in the United States have P/E ratios under 19x and even P/E's lower than 11x 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 so lofty.

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With earnings growth that's superior to most other companies of late, Vita Coco Company has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Vita Coco Company

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

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. Pleasingly, EPS has also lifted 380% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.

With this information, we can see why Vita Coco Company 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

Vita Coco Company's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Vita Coco Company's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Vita Coco Company you should know about.

You might be able to find a better investment than Vita Coco Company. 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.