Potential Upside For FirstCash Holdings, Inc. (NASDAQ:FCFS) Not Without Risk

It's not a stretch to say that FirstCash Holdings, Inc.'s (NASDAQ:FCFS) price-to-earnings (or "P/E") ratio of 19.7x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for FirstCash Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for FirstCash Holdings

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

Does Growth Match The P/E?

In order to justify its P/E ratio, FirstCash Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. The latest three year period has also seen an excellent 90% 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 15% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 11% per year, which is noticeably less attractive.

With this information, we find it interesting that FirstCash Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On FirstCash Holdings' P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that FirstCash Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for FirstCash Holdings that you should be aware of.

If you're unsure about the strength of FirstCash Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.