Roper Technologies, Inc.’s (NYSE:ROP) price-to-earnings (or “P/E”) ratio of 26.7x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E’s below 9x are quite common. 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.
Roper Technologies certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
View our latest analysis for Roper Technologies
Want the full picture on analyst estimates for the company? Then our free report on Roper Technologies will help you uncover what’s on the horizon.
How Is Roper Technologies’ Growth Trending?
There’s an inherent assumption that a company should far outperform the market for P/E ratios like Roper Technologies’ to be considered reasonable.
Retrospectively, the last year delivered an exceptional 48% gain to the company’s bottom line. Pleasingly, EPS has also lifted 140% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to slump, contracting by 7.9% per year during the coming three years according to the nine analysts following the company. That’s not great when the rest of the market is expected to grow by 11% per year.
With this information, we find it concerning that Roper 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. There’s a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We’ve established that Roper Technologies currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.
Having said that, be aware Roper Technologies is showing 4 warning signs in our investment analysis, you should know about.
Of course, you might also be able to find a better stock than Roper Technologies. So you may wish to see this free collection of other companies that sit on P/E’s below 20x and have grown earnings strongly.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.