What You Can Learn From ACI Worldwide, Inc.'s (NASDAQ:ACIW) P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider ACI Worldwide, Inc. (NASDAQ:ACIW) as a stock to avoid entirely with its 29x P/E ratio. 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.

ACI Worldwide certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for ACI Worldwide

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

How Is ACI Worldwide's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 60% last year. The strong recent performance means it was also able to grow EPS by 70% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 16% during the coming year according to the six analysts following the company. With the market only predicted to deliver 12%, the company is positioned for a stronger earnings result.

With this information, we can see why ACI Worldwide is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From ACI Worldwide's P/E?

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.

As we suspected, our examination of ACI Worldwide'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.

Having said that, be aware ACI Worldwide is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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