Q: WSP is frequently favourably mentioned in the Q & A and its share price has been on a nice run (about 30% in the last 12 months). But at present its P/E is about 50 and its Price / Cash Flow is above 28. Are these matrices somewhat concerning? Apart from J:US (which I also own), do any of its peers look more appealing? Thanks much for your excellent service.
5i Research Answer:
The P/E that was mentioned is the trailing metric. We typically focus more on forward P/E which is still expensive at 28.2x, but much lower than trailing. Forward P/E utilizes the next twelve months of analyst EPS estimates to calculate this ratio which provides a better look at what we are paying for future growth. While P/E and P/FCF are definitely high, this more-so reflects sentiment surrounding WSP's business. Companies in the consulting/engineering space typically carry high backlogs of business (as WSP does) making growth lower risk and warranting a premium valuation so we are not concerned there. STN is a close peer which we also like, but we still favour WSP over it for growth potential.