It's not a stretch to say that Bright Scholar Education Holdings Limited's (NYSE:BEDU) price-to-earnings (or "P/E") ratio of 19.6x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
As an illustration, earnings have deteriorated at Bright Scholar Education Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bright Scholar Education Holdings' earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The P/E?
Bright Scholar Education Holdings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 32% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
It's interesting to note that the rest of the market is similarly expected to grow by 8.3% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
In light of this, it's understandable that Bright Scholar Education Holdings' P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.
The Bottom Line On Bright Scholar Education Holdings' P/E
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.
As we suspected, our examination of Bright Scholar Education Holdings revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.
Plus, you should also learn about these 4 warning signs we've spotted with Bright Scholar Education Holdings (including 1 which is concerning).
You might be able to find a better investment than Bright Scholar Education Holdings. 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).
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.
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