Turning Point Brands, Inc.'s (NYSE:TPB) P/E Still Appears To Be Reasonable

With a median price-to-earnings (or "P/E") ratio of close to 19x in the United States, you could be forgiven for feeling indifferent about Turning Point Brands, Inc.'s (NYSE:TPB) P/E ratio of 19.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Turning Point Brands has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Turning Point Brands

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

Is There Some Growth For Turning Point Brands?

The only time you'd be comfortable seeing a P/E like Turning Point Brands' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 260% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 1.9% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the three analysts watching the company. With the market predicted to deliver 11% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why Turning Point Brands is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Turning Point Brands' P/E

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 Turning Point Brands maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Turning Point Brands is showing 2 warning signs in our investment analysis, 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).

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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.