With a trailing price-to-earnings (P/E) ratio of 19.7x, ASGN Incorporated (NYSE: ASGN) stands out when compared to the majority of U.S. companies, many of which have P/E ratios under 16x, with some even below 9x. However, taking a closer look at the financials, when we factor in adjusted earnings, the picture changes significantly—the adjusted P/E comes in at around 15.3x, indicating a closer alignment with the broader market.

Delving deeper into its financials, ASGN has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. However, it's worth noting that even with these challenges, the company's P/E remains below the industry average within the Professional Services Sector.

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How Is ASGN's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 49% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to slump, contracting by 3.3% during the coming year according to the seven analysts following the company. That's not great when the rest of the market is expected to grow by 10%.

With this information, It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

The Final Word

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.

We've established that ASGN currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.