Unpleasant Surprises Could Be In Store For C.H. Robinson Worldwide, Inc.'s (NASDAQ:CHRW) 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 C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) as a stock to potentially avoid with its 22.9x 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 as high as it is.

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With earnings growth that's superior to most other companies of late, C.H. Robinson Worldwide has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for C.H. Robinson Worldwide

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

How Is C.H. Robinson Worldwide's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 66% gain to the company's bottom line. Still, incredibly EPS has fallen 40% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the analysts watching the company. That's shaping up to be similar to the 10% each year growth forecast for the broader market.

In light of this, it's curious that C.H. Robinson Worldwide's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

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.

Our examination of C.H. Robinson Worldwide's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for C.H. Robinson Worldwide that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.