Nelnet, Inc.'s (NYSE:NNI) price-to-earnings (or "P/E") ratio of 29.1x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Recent times haven't been advantageous for Nelnet as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nelnet.
How Is Nelnet's Growth Trending?
In order to justify its P/E ratio, Nelnet would need to produce outstanding growth well in excess of the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 44%. The last three years don't look nice either as the company has shrunk EPS by 72% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next year should generate growth of 43% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 12% growth forecast for the broader market.
In light of this, it's understandable that Nelnet's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Nelnet maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
Before you take the next step, you should know about the 2 warning signs for Nelnet (1 is potentially serious!) that we have uncovered.
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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Nelnet, Inc. 's(紐約證券交易所代碼:NNI)的市盈率(或 “市盈率”)爲29.1倍,與美國市場相比,目前看上去像是強勁的拋售。在美國,約有一半公司的市盈率低於17倍,甚至市盈率低於9倍也很常見。但是,市盈率可能相當高是有原因的,需要進一步調查以確定其是否合理。