The StoneX Group Inc. (NASDAQ:SNEX) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 100%.
In spite of the firm bounce in price, there still wouldn't be many who think StoneX Group's price-to-earnings (or "P/E") ratio of 18.7x is worth a mention when the median P/E in the United States is similar at about 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 StoneX Group 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
View our latest analysis for StoneX Group
What Are Growth Metrics Telling Us About The P/E?
In order to justify its P/E ratio, StoneX Group would need to produce growth that's similar to the market.
If we review the last year of earnings growth, the company posted a terrific increase of 24%. The latest three year period has also seen an excellent 53% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Turning to the outlook, the next year should generate growth of 13% as estimated by the only analyst watching the company. That's shaping up to be similar to the 15% growth forecast for the broader market.
In light of this, it's understandable that StoneX Group's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
The Key Takeaway
Its shares have lifted substantially and now StoneX Group's P/E is also back up to the market median. 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 StoneX Group maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for StoneX Group that you should be aware of.
If these risks are making you reconsider your opinion on StoneX Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.