Ninety One Group's (LON:N91) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Ninety One Group (LON:N91) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Although its price has surged higher, Ninety One Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.8x, since almost half of all companies in the United Kingdom have P/E ratios greater than 16x and even P/E's higher than 28x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Ninety One Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Ninety One Group

Keen to find out how analysts think Ninety One Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ninety One Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Ninety One Group's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 14% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 1.2% per year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 16% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that Ninety One 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

The latest share price surge wasn't enough to lift Ninety One Group's P/E close to the market median. 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.

We've established that Ninety One Group maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Ninety One Group with six simple checks on some of these key factors.

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.