Investors Appear Satisfied With Flotek Industries, Inc.'s (NYSE:FTK) Prospects As Shares Rocket 32%

Despite an already strong run, Flotek Industries, Inc. (NYSE:FTK) shares have been powering on, with a gain of 32% in the last thirty days. The annual gain comes to 186% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Flotek Industries as a stock to avoid entirely with its 32.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Flotek Industries has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Flotek Industries

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

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Flotek Industries would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 175% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 39% over the next year. Meanwhile, the rest of the market is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's understandable that Flotek Industries' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Flotek Industries' P/E?

Flotek Industries' P/E is flying high just like its stock has during the last month. 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 Flotek Industries' 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Flotek Industries that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.