Mr. Cooper Group Inc.'s (NASDAQ:COOP) price-to-earnings (or "P/E") ratio of 9x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Mr. Cooper Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for Mr. Cooper Group
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Mr. Cooper Group's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.
Looking ahead now, EPS is anticipated to climb by 26% during the coming year according to the six analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.
With this information, we find it odd that Mr. Cooper Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What We Can Learn From Mr. Cooper Group's P/E?
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.
Our examination of Mr. Cooper Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
Having said that, be aware Mr. Cooper Group is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
