When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Check Point Software Technologies Ltd. (NASDAQ:CHKP) as a stock to potentially avoid with its 25.1x 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.
Recent times have been pleasing for Check Point Software Technologies as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Check Point Software Technologies will help you uncover what's on the horizon.
How Is Check Point Software Technologies' Growth Trending?
In order to justify its P/E ratio, Check Point Software Technologies would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.9% last year. The solid recent performance means it was also able to grow EPS by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the analysts watching the company. With the market predicted to deliver 10% growth each year, the company is positioned for a weaker earnings result.
With this information, we find it concerning that Check Point Software Technologies is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on 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.
We've established that Check Point Software Technologies currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Check Point Software Technologies with six simple checks.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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.
當美國近一半公司市盈率低於17倍時,您可能會考慮避免購買納斯達克(NASDAQ:CHKP)Check Point Software Technologies Ltd.的股票,因其高達25.1倍的市盈率。雖然,僅僅憑市盈率就做出決策並不明智,因爲市盈率之所以如此之高可能有其原因。
儘管市場收益出現逆轉,但近期對Check Point Software Technologies而言非常令人滿意的是其盈利增長。市盈率可能之所以高是因爲投資者認爲該公司將繼續比大多數公司更好地應對更廣泛的市場風險。如果不是這樣,那麼現有股東可能會對股價的可行性有所擔憂。
想要了解該公司分析師預期的完整畫面嗎?查看我們免費提供的Check Point Software Technologies報告可以幫您發現將要發生的事情。
Check Point Software Technologies的成長趨勢如何?
爲了證明其市盈率的合理性,Check Point Software Technologies需要產生超越市場的顯著增長。