Unpleasant Surprises Could Be In Store For Benchmark Electronics, Inc.'s (NYSE:BHE) Shares

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Benchmark Electronics, Inc. (NYSE:BHE) as a stock to potentially avoid with its 24.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We check all companies for important risks. See what we found for Benchmark Electronics in our free report.

Benchmark Electronics could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Benchmark Electronics

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

How Is Benchmark Electronics' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. Even so, admirably EPS has lifted 34% in aggregate from three years ago, notwithstanding the last 12 months. 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 0.9% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 13% growth forecast for the broader market.

In light of this, it's alarming that Benchmark Electronics' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Benchmark Electronics' 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.

We've established that Benchmark Electronics currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Benchmark Electronics with six simple checks.

Of course, you might also be able to find a better stock than Benchmark Electronics. 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.