Veeco Instruments Inc. (NASDAQ:VECO) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 7.3% isn't as attractive.
After such a large jump in price, Veeco Instruments' price-to-earnings (or "P/E") ratio of 29.6x 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 15x and even P/E's below 9x 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 have been advantageous for Veeco Instruments as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Veeco Instruments.
How Is Veeco Instruments' Growth Trending?
In order to justify its P/E ratio, Veeco Instruments would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 323% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next year should generate growth of 29% as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 8.9%, which is noticeably less attractive.
With this information, we can see why Veeco Instruments 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 Veeco Instruments' P/E
The strong share price surge has got Veeco Instruments' P/E rushing to great heights as well. 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.
As we suspected, our examination of Veeco Instruments' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Veeco Instruments with six simple checks on some of these key factors.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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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.
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