With a median price-to-earnings (or "P/E") ratio of close to 17x in the United States, you could be forgiven for feeling indifferent about Stride, Inc.'s (NYSE:LRN) P/E ratio of 15.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Stride certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
NYSE:LRN Price to Earnings Ratio vs Industry July 6th 2024 Keen to find out how analysts think Stride's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Some Growth For Stride?
There's an inherent assumption that a company should be matching the market for P/E ratios like Stride's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 64% gain to the company's bottom line. Pleasingly, EPS has also lifted 164% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 12% as estimated by the five analysts watching the company. With the market predicted to deliver 12% growth , the company is positioned for a comparable earnings result.
With this information, we can see why Stride is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
The Bottom Line On Stride's P/E
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 Stride maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.
Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Stride with six simple checks on some of these key factors.
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).
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