Why Investors Shouldn't Be Surprised By Booking Holdings Inc.'s (NASDAQ:BKNG) P/E

Booking Holdings Inc. -0.45%

Booking Holdings Inc.

BKNG

3414.82

-0.45%

With a price-to-earnings (or "P/E") ratio of 23.4x Booking Holdings Inc. (NASDAQ:BKNG) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Booking Holdings 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.

Check out our latest analysis for Booking Holdings

pe-multiple-vs-industry
NasdaqGS:BKNG Price to Earnings Ratio vs Industry December 29th 2023
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Booking Holdings.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Booking Holdings would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 137% last year. The latest three year period has also seen an excellent 348% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.

With this information, we can see why Booking Holdings is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Booking Holdings' P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Booking Holdings 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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Booking Holdings that we have uncovered.

If these risks are making you reconsider your opinion on Booking Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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