Is Ferguson (FERG) Still a Buy After a 40% YTD Surge? Valuation Realism Versus Growth Optimism

The 40% year-to-date (YTD) surge in Ferguson Enterprises (FERG) has sparked debate among investors: Is this rally driven by fundamentals, or is it a speculative overreach fueled by optimism about the industrial sector's recovery? To answer this, we must dissect FERG's valuation metrics against its earnings growth, industry benchmarks, and strategic performance.

Valuation Metrics: A Mixed Bag

FERG's trailing price-to-earnings (P/E) ratio of 26.65 as of Q3 2025 according to Yahoo Finance exceeds the Industrials sector average of 24.6 per FullRatio, suggesting a premium valuation. While this is 34% above its five-year historical average per FullRatio, the forward P/E of 21.32 indicates some discounting of future growth. However, the PEG ratio of 1.60 according to Yahoo Finance-which compares the P/E to earnings growth expectations-reveals a critical flaw: the stock is overvalued relative to its projected growth. A PEG above 1 typically signals that a stock is overpriced for its fundamentals.

The price-to-book (P/B) ratio of 8.37 according to FinanceCharts further underscores this disconnect. FERG's stock trades at nearly eight times its book value, a level that reflects strong market confidence but also raises questions about sustainability. By contrast, its price-to-sales (P/S) ratio of 1.61 according to Yahoo Finance is significantly lower than the Industrials sector average of 2.87 per Stern School data, suggesting that while FERG is expensive relative to its book value, it is relatively affordable compared to peers based on revenue.

Earnings Growth: Real Progress, But Is It Enough?

FERG's 2025 full-year diluted EPS of $9.32 represents a 9.3% increase from $8.53 in 2024 per Ferguson's earnings release, driven by robust performance in non-residential markets such as large capital projects and commercial mechanical services per earnings call transcript. This growth, coupled with disciplined cost management, has bolstered operating margins, which are projected to remain in the 9.2% to 9.6% range per earnings call transcript.

However, the company's guidance for mid-single-digit revenue growth per earnings call transcript contrasts with its elevated valuation. For FERG to justify its current P/E and PEG ratios, it would need to consistently outperform these expectations. The challenge lies in sustaining this momentum amid potential headwinds in residential markets and macroeconomic uncertainty.

Sector Context: A Tale of Two Metrics

FERG's valuation diverges from its peers. While its P/E of 26.65 is higher than Grainger's (GWW) 25.98 per FullRatio, it remains below the Industrials sector average in terms of P/S per Stern School data. This duality highlights FERG's unique position: it is valued more for its earnings potential than its revenue scale. Yet, the PEG ratio of 1.60 according to Yahoo Finance suggests that even this earnings-driven optimism may be overextended.

The Verdict: Realism or Optimism?

FERG's fundamentals-particularly its non-residential market gains and margin discipline-are undeniably strong. However, its valuation metrics paint a less rosy picture. A P/E 34% above its historical average per FullRatio and a PEG ratio exceeding 1 according to Yahoo Finance imply that the market is pricing in growth that may not materialize. For investors, the key question is whether FERG's strategic initiatives can translate into earnings growth sufficient to justify these multiples.

In the short term, FERG remains a buy for those who believe in its ability to navigate sector-specific tailwinds. However, the 40% YTD surge has largely priced in near-term optimism. A more cautious approach-waiting for a pullback or clearer evidence of sustained growth-may be prudent for risk-averse investors.