There wouldn't be many who think DICK'S Sporting Goods, Inc.'s (NYSE:DKS) price-to-earnings (or "P/E") ratio of 16.7x is worth a mention when the median P/E in the United States is similar at about 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for DICK'S Sporting Goods as its earnings have been rising faster 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for DICK'S Sporting Goods

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

How Is DICK'S Sporting Goods' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like DICK'S Sporting Goods' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 14% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 4.8% per annum as estimated by the analysts watching the company. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's curious that DICK'S Sporting Goods' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On DICK'S Sporting Goods' P/E

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.

Our examination of DICK'S Sporting Goods' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware DICK'S Sporting Goods is showing 1 warning sign in our investment analysis, you should know about.

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

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