Revolve Group, Inc. (NYSE:RVLV) Stocks Shoot Up 42% But Its P/E Still Looks Reasonable

Revolve Group, Inc. (NYSE:RVLV) shareholders have had their patience rewarded with a 42% share price jump in the last month. The annual gain comes to 145% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Revolve Group as a stock to avoid entirely with its 57.8x 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.

Revolve Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View 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.

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. Still, incredibly EPS has fallen 54% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 31% per year over the next three years. With the market only predicted to deliver 11% 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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Revolve Group's 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.

We've established that Revolve Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Revolve Group is showing 1 warning sign in our investment analysis, you should know about.

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.