The Bowman Consulting Group Ltd. (NASDAQ:BWMN) share price has done very well over the last month, posting an excellent gain of 25%. Looking further back, the 10% rise over the last twelve months isn’t too bad notwithstanding the strength over the last 30 days.
After such a large jump in price, Bowman Consulting Group’s price-to-earnings (or “P/E”) ratio of 78.7x 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 14x and even P/E’s below 8x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it’s justified.
With earnings growth that’s superior to most other companies of late, Bowman Consulting Group has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
Our analysis indicates that BWMN is potentially undervalued!
Keen to find out how analysts think Bowman Consulting Group’s future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Growth For Bowman Consulting Group?
Bowman Consulting Group’s 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.
Retrospectively, the last year delivered an exceptional 128% gain to the company’s bottom line. Still, incredibly EPS has fallen 4.5% in total from three years ago, which is quite disappointing. Therefore, it’s fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next year should generate growth of 118% as estimated by the twin analysts watching the company. With the market only predicted to deliver 7.3%, the company is positioned for a stronger earnings result.
In light of this, it’s understandable that Bowman Consulting Group’s P/E sits above the majority of other companies. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Bowman Consulting Group’s P/E
Bowman Consulting Group’s P/E is flying high just like its stock has during the last month. 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 Bowman Consulting Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn’t great enough to justify a lower P/E ratio. It’s hard to see the share price falling strongly in the near future under these circumstances.
Having said that, be aware Bowman Consulting Group is showing 2 warning signs in our investment analysis, you should know about.
You might be able to find a better investment than Bowman Consulting Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
Valuation is complex, but we’re helping make it simple.
Find out whether Bowman Consulting Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.