With a price-to-earnings (or "P/E") ratio of 70.5x Revvity, Inc. (NYSE:RVTY) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 9x are not unusual.  Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.  

Revvity has been struggling lately as its earnings have declined faster than most other companies.   It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing.  If not, then existing shareholders may be very nervous about the viability of the share price.    

NYSE:RVTY Price to Earnings Ratio vs Industry May 13th 2024

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Revvity.

What Are Growth Metrics Telling Us About The High P/E?  

In order to justify its P/E ratio, Revvity would need to produce outstanding growth well in excess of the market.  

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 48%.   As a result, earnings from three years ago have also fallen 85% overall.  So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.  

Looking ahead now, EPS is anticipated to climb by 27% per year during the coming three years according to the analysts following the company.  Meanwhile, the rest of the market is forecast to only expand by 9.9% each year, which is noticeably less attractive.

With this information, we can see why Revvity is trading at such a high P/E compared to the market.  It seems most investors are expecting this strong future growth and are willing to pay more for the stock.  

The Bottom Line On Revvity's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Revvity's 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.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Revvity that you need to be mindful of.  

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

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.