When close to half the companies in the United States have price-to-earnings ratios (or “P/E’s”) below 17x, you may consider Avery Dennison Corporation (NYSE:AVY) as a stock to avoid entirely with its 35.7x 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.
Avery Dennison 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. If not, then existing shareholders may be very nervous about the viability of the share price.
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