With a price-to-earnings (or "P/E") ratio of 8.9x StoneX Group Inc. (NASDAQ:SNEX) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
StoneX Group 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. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
NasdaqGS:SNEX Price to Earnings Ratio vs Industry February 1st 2024
Keen to find out how analysts think StoneX Group's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
StoneX Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 12% last year. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Shifting to the future, estimates from the covering the company suggest earnings growth is heading into negative territory, declining 9.0% over the next year. With the market predicted to deliver 10% growth , that's a disappointing outcome.
In light of this, it's understandable that StoneX Group's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of StoneX Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 2 warning signs for StoneX Group (1 is potentially serious!) that you need to be mindful of.
Of course, you might also be able to find a better stock than StoneX Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.