Clean Harbors (CLH): A Momentum Play with a High Price Tag?
For new and old investors, taking full advantage of the stock market and investing with confidence are common goals. Finding great stocks is made easier with the Zacks Style Scores, complementary indicators that rate stocks based on value, growth, and/or momentum characteristics.
Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.
Headquartered in Norwell, MA, Clean Harbors, Inc. (CLH) is a leading provider of environmental, energy and industrial services in North America, wherein it operates the largest number of hazardous waste incinerators, landfills and treatment, storage and disposal facilities ("TSDFs").
CLH boasts a Momentum Style Score of B and VGM Score of A, and holds a Zacks Rank #3 (Hold) rating. Shares of Clean Harbors has seen some interesting price action recently; the stock is up 2% over the past one week and up 2.4% over the past four weeks. And in the last one-year period, CLH has gained 40.2%. As for the stock's trading volume, 298,392.66 shares on average were traded over the last 20 days.
Momentum investors don't just pay attention to price changes; positive earnings play a crucial role, too. Five analysts revised their earnings estimate upwards in the last 60 days for fiscal 2024. The Zacks Consensus Estimate has increased $0.18 to $7.65 per share. CLH boasts an average earnings surprise of 3%.
Investors should take the time to consider CLH for their portfolios due to its solid Zacks Ranks, notable earnings metrics, and impressive Momentum and VGM Style Scores.
Examining Clean Harbors' Price-to-Earnings Ratio
Clean Harbors, Inc.'s (NYSE:CLH) price-to-earnings (or "P/E") ratio of 32x 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 17x and even P/E's below 10x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Clean Harbors' negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Delving Deeper into Clean Harbors' Growth Prospects
The only time you'd be truly comfortable seeing a P/E as steep as Clean Harbors' is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.2%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 118% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 14% per year over the next three years. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.
In light of this, it's understandable that Clean Harbors' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
Conclusion: A Balancing Act of Growth and Valuation
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Clean Harbors maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Clean Harbors that you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
