Market Participants Recognise Palomar Holdings, Inc.'s (NASDAQ:PLMR) 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 Palomar Holdings, Inc. (NASDAQ:PLMR) as a stock to potentially avoid with its 23.5x 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 as high as it is.

Palomar Holdings certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Palomar Holdings

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

How Is Palomar Holdings' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Palomar Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 63%. The latest three year period has also seen an excellent 704% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader market.

With this information, we can see why Palomar Holdings is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Palomar Holdings' 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Palomar Holdings is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.

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