StepStone Group (STEP): Evaluating Valuation After Recent Share Price Volatility

StepStone Group (STEP) shares have seen some movement lately, giving investors a reason to check in on the company’s latest results and long-term performance. With its diversified financial services, StepStone continues to draw attention in today’s market.

See our latest analysis for StepStone Group.

Despite a bumpy week for StepStone Group’s share price, including an 8.91% drop over seven days, the stock is still up 3.82% year-to-date. Its three- and five-year total shareholder returns of 139.93% and 164.67% show just how persistent that long-term momentum has been. Short-term swings aside, it is that kind of staying power investors tend to notice.

If you’re curious what other stocks are showing strong multi-year growth, now is an ideal time to expand your search and discover fast growing stocks with high insider ownership.

Given its robust multi-year returns and a current price nearly 18% below analyst targets, the key question now is whether StepStone Group is undervalued or if the market already anticipates future growth in its valuation.

Price-to-Sales of 3.5x: Is it justified?

StepStone Group’s stock is priced at a 3.5x price-to-sales ratio, suggesting a notable discount relative to its peer average of 6x and the US Capital Markets industry average of 4x. This is in contrast to certain metrics that might otherwise point to lofty valuations in financial services.

The price-to-sales ratio measures how much investors are willing to pay for each dollar of annual revenue. It is a useful comparison tool for asset managers and other financial companies where profits can be volatile or negative.

Given StepStone’s unprofitable status and increasing losses over the last five years, this below-average multiple signals that the market is pricing in those challenges. However, compared to industry norms, it could reflect conservative expectations or a degree of undervaluation, especially as its revenue growth outlook trails both the market and sector benchmarks. The fair price-to-sales ratio estimate stands at 1.6x, much lower than the current 3.5x. This suggests the market may still be overvaluing the business relative to fundamentals.

Explore the SWS fair ratio for StepStone Group

Result: Price-to-Sales of 3.5x (UNDERVALUED compared to peers, OVERVALUED compared to fair ratio)

However, persistent unprofitability and slower-than-industry revenue growth could challenge StepStone Group’s valuation narrative if these trends continue in future quarters.

Find out about the key risks to this StepStone Group narrative.

Another View: DCF Tells a Different Story

Looking from the SWS DCF model’s perspective, StepStone Group appears overvalued. The model estimates a fair value near $9.34 per share, which is far below the current price around $60.93. This sharp contrast suggests the market could be pricing in expectations the fundamentals do not support at this time. Which approach is closer to reality?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out StepStone Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own StepStone Group Narrative

If you’d rather form your own opinion or want to test the numbers for yourself, you can build your own view in just a few minutes with Do it your way.

A great starting point for your StepStone Group research is our analysis highlighting 2 important warning signs that could impact your investment decision.

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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.

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