Scholastic Corporation's (NASDAQ:SCHL) P/E Is On The Mark

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Scholastic Corporation (NASDAQ:SCHL) as a stock to avoid entirely with its 29.2x 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.

Scholastic has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Scholastic

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

How Is Scholastic's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 52% decrease to the company's bottom line. Even so, admirably EPS has lifted 531% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 100% during the coming year according to the one analyst following the company. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Scholastic's 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.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Scholastic 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.

Plus, you should also learn about these 3 warning signs we've spotted with Scholastic.

If these risks are making you reconsider your opinion on Scholastic, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.