There wouldn't be many who think Crane NXT, Co.'s (NYSE:CXT) price-to-earnings (or "P/E") ratio of 19.1x is worth a mention when the median P/E in the United States is similar at about 19x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Crane NXT could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.
Is There Some Growth For Crane NXT?
There's an inherent assumption that a company should be matching the market for P/E ratios like Crane NXT's to be considered reasonable.
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 13%. This means it has also seen a slide in earnings over the longer-term as EPS is down 2.0% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 23% over the next year. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.
In light of this, it's curious that Crane NXT's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
What We Can Learn From Crane NXT's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Crane NXT currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
It is also worth noting that we have found 1 warning sign for Crane NXT that you need to take into consideration.
If these risks are making you reconsider your opinion on Crane NXT, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
