Shareholders Should Be Pleased With T-Mobile US, Inc.'s (NASDAQ:TMUS) Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider T-Mobile US, Inc. (NASDAQ:TMUS) as a stock to potentially avoid with its 23.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for T-Mobile US as its earnings have risen in spite of the market's earnings going into reverse. 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.

Check out our latest analysis for T-Mobile US

Want the full picture on analyst estimates for the company? Then our free report on T-Mobile US will help you uncover what's on the horizon.

Is There Enough Growth For T-Mobile US?

In order to justify its P/E ratio, T-Mobile US would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 239% gain to the company's bottom line. The latest three year period has also seen an excellent 192% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.

In light of this, it's understandable that T-Mobile US' 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 T-Mobile US' P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of T-Mobile US' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for T-Mobile US you should know about.

You might be able to find a better investment than T-Mobile US. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.