BrightSphere Investment Group Inc. (NYSE:BSIG) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 85%.

In spite of the firm bounce in price, BrightSphere Investment Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.3x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 36x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that BrightSphere Investment Group's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Growth For BrightSphere Investment Group?

The only time you'd be truly comfortable seeing a P/E as low as BrightSphere Investment Group's is when the company's growth is on track to lag 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 1.4%. As a result, earnings from three years ago have also fallen 24% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 15% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that BrightSphere Investment Group is trading at a P/E lower than the market. 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 Bottom Line On BrightSphere Investment Group's P/E

Despite BrightSphere Investment Group's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of BrightSphere Investment Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for BrightSphere Investment Group (2 are concerning) you should be aware of.

If these risks are making you reconsider your opinion on BrightSphere Investment Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.