Pinning Down Old Dominion Freight Line, Inc.'s (NASDAQ:ODFL) P/E Is Difficult Right Now

Old Dominion Freight Line, Inc.'s (NASDAQ:ODFL) price-to-earnings (or "P/E") ratio of 36.3x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Old Dominion Freight Line could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Old Dominion Freight Line

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

How Is Old Dominion Freight Line's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.7%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 115% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 13% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's curious that Old Dominion Freight Line'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.

What We Can Learn From Old Dominion Freight Line's 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.

Our examination of Old Dominion Freight Line'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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Old Dominion Freight Line.

Of course, you might also be able to find a better stock than Old Dominion Freight Line. 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.