When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Newmark Group, Inc. (NASDAQ:NMRK) as a stock to avoid entirely with its 39.2x 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.

Newmark Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Newmark Group

Keen to find out how analysts think Newmark Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Newmark Group?

The only time you'd be truly comfortable seeing a P/E as steep as Newmark Group's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 321%. Still, incredibly EPS has fallen 90% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 29% each year over the next three years. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we can see why Newmark Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Newmark Group's 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.

As we suspected, our examination of Newmark Group's 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.

Before you take the next step, you should know about the 1 warning sign for Newmark Group that we have uncovered.

Of course, you might also be able to find a better stock than Newmark 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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