Market Participants Recognise Boot Barn Holdings, Inc.'s (NYSE:BOOT) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Boot Barn Holdings, Inc. (NYSE:BOOT) as a stock to potentially avoid with its 25.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Boot Barn Holdings 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.

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Is There Enough Growth For Boot Barn Holdings?

In order to justify its P/E ratio, Boot Barn Holdings would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 135% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the analysts following the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Boot Barn Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Boot Barn Holdings 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.

Before you settle on your opinion, we've discovered 1 warning sign for Boot Barn Holdings that you should be aware of.

If you're unsure about the strength of Boot Barn Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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