The Price Is Right For Light & Wonder, Inc. (NASDAQ:LNW) Even After Diving 25%

Light & Wonder, Inc. (NASDAQ:LNW) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 11% share price drop.

Although its price has dipped substantially, Light & Wonder's price-to-earnings (or "P/E") ratio of 19.8x might still make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Light & Wonder certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Light & Wonder

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

How Is Light & Wonder's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Light & Wonder's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 111% gain to the company's bottom line. The latest three year period has also seen an excellent 7,482% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 31% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.

With this information, we can see why Light & Wonder is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Light & Wonder's P/E?

Despite the recent share price weakness, Light & Wonder's P/E remains higher than most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Light & Wonder maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Light & Wonder (including 1 which makes us a bit uncomfortable).

Of course, you might also be able to find a better stock than Light & Wonder. 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.