It's A Story Of Risk Vs Reward With Franklin Resources, Inc. (NYSE:BEN)

Franklin Resources, Inc.'s (NYSE:BEN) price-to-earnings (or "P/E") ratio of 14.1x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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 Franklin Resources

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

Is There Any Growth For Franklin Resources?

Franklin Resources' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.4% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 24% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

With this information, we find it odd that Franklin Resources is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Franklin Resources currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

You always need to take note of risks, for example - Franklin Resources has 3 warning signs we think you should be aware of.

You might be able to find a better investment than Franklin Resources. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com