With a price-to-earnings (or "P/E") ratio of 22.8x nVent Electric plc (NYSE:NVT) may be sending 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 as high as it is.  

With its earnings growth in positive territory compared to the declining earnings of most other companies, nVent Electric has been doing quite well of late.   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.    

NYSE:NVT Price to Earnings Ratio vs Industry June 6th 2024

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

How Is nVent Electric's Growth Trending?  

In order to justify its P/E ratio, nVent Electric would need to produce impressive growth in excess of the market.  

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year.    Still, EPS has barely risen at all from three years ago in total, which is not ideal.  Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.  

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 0.03%  each year as estimated by the twelve analysts watching the company.  Meanwhile, the broader market is forecast to expand by 9.9% each year, which paints a poor picture.

With this information, we find it concerning that nVent Electric 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 these declining earnings are likely to weigh heavily on the share price eventually.  

The Bottom Line On nVent Electric's P/E

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.

Our examination of nVent Electric's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted.  When we see a poor outlook with earnings heading backwards, 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.    

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

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.  

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.