MarineMax, Inc.'s (NYSE:HZO) Share Price Not Quite Adding Up

There wouldn't be many who think MarineMax, Inc.'s (NYSE:HZO) price-to-earnings (or "P/E") ratio of 15.1x is worth a mention when the median P/E in the United States is similar at about 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

MarineMax certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for MarineMax

How Does MarineMax's P/E Ratio Compare To Its Industry Peers?

We'd like to see if P/E's within MarineMax's industry might provide some colour around the company's fairly average P/E ratio. The image below shows that the Specialty Retail industry as a whole has a P/E ratio higher than the market. So it appears the company's ratio isn't really influenced by these industry numbers currently. Ordinarily, the majority of companies' P/E's would be lifted by the general conditions within the Specialty Retail industry. Nevertheless, the company's P/E should be primarily influenced by its own financial performance.

Want the full picture on analyst estimates for the company? Then our free report on MarineMax will help you uncover what's on the horizon.

How Is MarineMax's Growth Trending?

MarineMax's 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 growth, the company posted a worthy increase of 6.6%. Pleasingly, EPS has also lifted 80% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 year should bring plunging returns, with earnings decreasing 13% as estimated by the eight analysts watching the company. With the rest of the market predicted to shrink by 10%, it's a sub-optimal result.

With this information, it's perhaps strange that MarineMax is trading at a fairly similar P/E in comparison. When earnings shrink rapidly the P/E often shrinks too, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

The Final Word

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that MarineMax currently trades on a higher than expected P/E since its earnings forecast is even worse than the struggling market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. In addition, we would be concerned whether the company can even maintain this level of performance under these tough market conditions. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for MarineMax (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

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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