Cautious Investors Not Rewarding Franklin Resources, Inc.'s (NYSE:BEN) Performance Completely

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Franklin Resources, Inc. (NYSE:BEN) as an attractive investment with its 13.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Franklin Resources certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Franklin Resources

Keen to find out how analysts think Franklin Resources' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 36% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 12% per year over the next three years. With the market only predicted to deliver 10% per annum, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Franklin Resources' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Franklin Resources' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Franklin Resources' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Franklin Resources that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.