Investors Aren't Buying Korn Ferry's (NYSE:KFY) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Korn Ferry (NYSE:KFY) as an attractive investment with its 15.1x 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.

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Korn Ferry certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Korn Ferry

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Korn Ferry.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Korn Ferry would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 23% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the five analysts watching the company. With the market predicted to deliver 11% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Korn Ferry's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Korn Ferry's P/E

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 Korn Ferry maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Korn Ferry that you need to take into consideration.

Of course, you might also be able to find a better stock than Korn Ferry. 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.