TXNM Energy, Inc.’s (NYSE:TXNM) price-to-earnings (or “P/E”) ratio of 48.8x 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 18x and even P/E’s below 10x 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.
Recent times haven’t been advantageous for TXNM Energy as its earnings have been falling quicker than most other companies. 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.
See our latest analysis for TXNM Energy
NYSE:TXNM Price to Earnings Ratio vs Industry October 25th 2024 Keen to find out how analysts think TXNM Energy’s future stacks up against the industry? In that case, our free report is a great place to start. What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, TXNM Energy would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 66%. This means it has also seen a slide in earnings over the longer-term as EPS is down 62% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 51% per annum over the next three years. That’s shaping up to be materially higher than the 11% per year growth forecast for the broader market.
In light of this, it’s understandable that TXNM Energy’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 Final Word
Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We’ve established that TXNM Energy 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. Unless these conditions change, they will continue to provide strong support to the share price.
Having said that, be aware TXNM Energy is showing 5 warning signs in our investment analysis, and 2 of those make us uncomfortable.
If these risks are making you reconsider your opinion on TXNM Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.
Discover if TXNM Energy might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.