Xencor, Inc.'s (NASDAQ:XNCR) Shares May Have Run Too Fast Too Soon

Xencor, Inc.'s (NASDAQ:XNCR) price-to-earnings (or "P/E") ratio of 75.9x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Xencor hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Xencor

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

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

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

Retrospectively, the last year delivered a frustrating 6.5% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 57% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

What We Can Learn From Xencor's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Xencor you should know about.

You might be able to find a better investment than Xencor. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (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.