Market Participants Recognise Revolve Group, Inc.'s (NYSE:RVLV) Earnings

Revolve Group, Inc.'s (NYSE:RVLV) price-to-earnings (or "P/E") ratio of 52.9x 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 17x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings that are retreating more than the market's of late, Revolve Group has been very sluggish. 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 Revolve Group

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

How Is Revolve Group's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 50%. As a result, earnings from three years ago have also fallen 67% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 50% each year during the coming three years according to the analysts following the company. With the market only predicted to deliver 9.9% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Revolve Group's 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 Bottom Line On Revolve Group's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Revolve Group's 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. Unless these conditions change, they will continue to provide strong support to the share price.

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

Of course, you might also be able to find a better stock than Revolve Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.