There's No Escaping StoneX Group Inc.'s (NASDAQ:SNEX) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 9.5x StoneX Group Inc. (NASDAQ:SNEX) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

StoneX Group 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for StoneX Group

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

Is There Any Growth For StoneX Group?

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

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The latest three year period has also seen a 25% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 8.6% as estimated by the watching the company. With the market predicted to deliver 10% growth , that's a disappointing outcome.

In light of this, it's understandable that StoneX Group's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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.

As we suspected, our examination of StoneX Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware StoneX Group is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

Of course, you might also be able to find a better stock than StoneX Group. 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.