The Market Lifts Virtus Investment Partners, Inc. (NASDAQ:VRTS) Shares 28% But It Can Do More

Virtus Investment Partners, Inc. (NASDAQ:VRTS) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 29%.

Even after such a large jump in price, Virtus Investment Partners may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Earnings have risen at a steady rate over the last year for Virtus Investment Partners, which is generally not a bad outcome. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. 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 out of favour.

See our latest analysis for Virtus Investment Partners

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Virtus Investment Partners will help you shine a light on its historical performance.

Is There Any Growth For Virtus Investment Partners?

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

Retrospectively, the last year delivered a decent 5.4% gain to the company's bottom line. Pleasingly, EPS has also lifted 143% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 10% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Virtus Investment Partners is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Virtus Investment Partners' P/E

Despite Virtus Investment Partners' shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Virtus Investment Partners revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Virtus Investment Partners with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Virtus Investment Partners. 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.