Kennedy-Wilson Holdings, Inc. (NYSE:KW) Not Doing Enough For Some Investors

When close to half the companies in the United States have price-to-earnings ratios (or “P/E’s”) above 17x, you may consider Kennedy-Wilson Holdings, Inc. (NYSE:KW) as an attractive investment with its 9.9x P/E ratio. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s limited.

Kennedy-Wilson Holdings certainly has been doing a good job lately as it’s been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Kennedy-Wilson Holdings

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NYSE:KW Price Based on Past Earnings July 16th 2020
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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Kennedy-Wilson Holdings would need to produce sluggish growth that’s trailing the market.

Retrospectively, the last year delivered an exceptional 51% gain to the company’s bottom line. The strong recent performance means it was also able to grow EPS by 1712% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company are not good at all, suggesting earnings should decline by 122% over the next year. The market is also set to see earnings decline 11% but the stock is shaping up to perform materially worse.

With this information, it’s not too hard to see why Kennedy-Wilson Holdings is trading at a lower P/E in comparison. Nonetheless, with earnings going quickly in reverse, it’s not guaranteed that the P/E has found a floor yet. 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 Kennedy-Wilson Holdings’ P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn’t sensible, however it can be a practical guide to the company’s future prospects.

As we suspected, our examination of Kennedy-Wilson Holdings’ analyst forecasts revealed that its even shakier outlook against the market is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won’t provide any pleasant surprises. Although, we would be concerned whether the company can even maintain this level of performance under these tough market conditions. For now though, it’s hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example – Kennedy-Wilson Holdings has 4 warning signs (and 2 which are significant) we think you should know about.

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 P/E below 20x.

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This article by Simply Wall St is general in nature. 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.
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