With a price-to-earnings (or "P/E") ratio of 29.3x Minerals Technologies Inc. (NYSE:MTX) 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.  Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.  

With earnings that are retreating more than the market's of late, Minerals Technologies has been very sluggish.   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.    

NYSE:MTX Price to Earnings Ratio vs Industry May 27th 2024

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

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

Minerals Technologies' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than 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 18%.   As a result, earnings from three years ago have also fallen 13% overall.  So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.  

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 38% per year over the next three years.  With the market only predicted to deliver 10.0% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Minerals Technologies 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 Key Takeaway

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 Minerals Technologies 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.    

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.