Despite an already strong run, Phibro Animal Health Corporation (NASDAQ:PAHC) shares have been powering on, with a gain of 30% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 5.7% isn't as attractive.

Following the firm bounce in price, Phibro Animal Health may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 45.9x, since almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Phibro Animal Health has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Growth For Phibro Animal Health?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 59%. As a result, earnings from three years ago have also fallen 67% overall. 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 40% per year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we can see why Phibro Animal Health is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Phibro Animal Health's P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Phibro Animal Health maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

It is also worth noting that we have found 4 warning signs for Phibro Animal Health (1 is potentially serious!) that you need to take into consideration.

If you're unsure about the strength of Phibro Animal Health's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.