StepStone Group (STEP): Taking a Closer Look at Its Valuation Following Recent Share Price Gains

StepStone Group (STEP) shares have been steadily gaining over the past month, rising more than 11%, which has caught the attention of many investors. The recent upswing prompts a closer look at what might be driving this momentum.

See our latest analysis for StepStone Group.

The recent jump in StepStone Group’s share price comes after a solid year, with total shareholder return up nearly 13% over the past 12 months and long-term holders enjoying meaningful gains. This positive momentum suggests rising optimism around its outlook and potential growth drivers.

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With StepStone Group’s shares rallying and total returns climbing, the key question for investors now is whether the recent gains reflect true value or if expectations for future growth are already factored into the price.

Price-to-Sales of 3.9x: Is it justified?

StepStone Group’s current price implies a Price-to-Sales (P/S) ratio of 3.9x, which stands out against both industry peers and its estimated fair value. At the last close of $66.96, investors are paying quite a premium to access each dollar of reported sales.

The P/S ratio is often used for financial companies where earnings can be volatile or negative. It tells investors how much they are paying per dollar of revenue and acts as a handy gauge for underlying demand and market optimism compared to the sector norm.

StepStone Group trades at a P/S ratio of 3.9x, below the peer group average of 5.7x and just under the broader industry benchmark of 4.0x. However, this number is well above the company’s own estimated fair value level of 1.5x. This shows a stark difference between where the market currently values the business and what a fundamental regression model suggests is reasonable. A reversion toward the lower fair ratio could mean significant downside, but for now, investors are willing to pay a premium for perceived growth or market position.

Explore the SWS fair ratio for StepStone Group

Result: Price-to-Sales of 3.9x (OVERVALUED)

However, slower revenue growth or continued net losses could challenge the bullish outlook and dampen investor enthusiasm if financial performance falters.

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

Another View: Discounted Cash Flow Perspective

While the market is assigning StepStone Group a premium price based on revenue, our SWS DCF model presents a more conservative perspective. According to this approach, the shares are trading well above the estimated fair value. Does this gap signal over-optimism or hidden opportunity?

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 think the story plays out differently or want to dig into the numbers yourself, you can build a custom narrative in just minutes with Do it your way.

A great starting point for your StepStone Group research is our analysis highlighting 3 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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