Investors Still Waiting For A Pull Back In Northern Technologies International Corporation (NASDAQ:NTIC)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Northern Technologies International Corporation (NASDAQ:NTIC) as a stock to potentially avoid with its 25.1x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Northern Technologies International 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.

View our latest analysis for Northern Technologies International

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

How Is Northern Technologies International's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 70% last year. The latest three year period has also seen an excellent 52% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 49% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

With this information, we can see why Northern Technologies International 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 Bottom Line On Northern Technologies International's P/E

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.

We've established that Northern Technologies International maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

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

You might be able to find a better investment than Northern Technologies International. 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.