Market Participants Recognise Barnes Group Inc.'s (NYSE:B) Earnings Pushing Shares 27% Higher

Barnes Group Inc. -2.72%

Barnes Group Inc.

B

35.10

-2.72%

Barnes Group Inc. (NYSE:B) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Since its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Barnes Group as a stock to avoid entirely with its 68.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Barnes Group has been struggling lately as its earnings have declined faster 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. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Barnes Group

pe-multiple-vs-industry
NYSE:B Price to Earnings Ratio vs Industry December 28th 2023
Want the full picture on analyst estimates for the company? Then our free report on Barnes Group will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

Barnes 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.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.6%. As a result, earnings from three years ago have also fallen 72% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 77% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.

In light of this, it's understandable that Barnes 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.

What We Can Learn From Barnes Group's P/E?

The strong share price surge has got Barnes Group's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Barnes Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Barnes Group you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course, you might also be able to find a better stock than Barnes Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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