Investors Appear Satisfied With LendingClub Corporation's (NYSE:LC) Prospects As Shares Rocket 28%

The LendingClub Corporation (NYSE:LC) share price has done very well over the last month, posting an excellent gain of 28%. The annual gain comes to 164% following the latest surge, making investors sit up and take notice.

After such a large jump in price, LendingClub may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 29.5x, since almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

LendingClub has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for LendingClub

Want the full picture on analyst estimates for the company? Then our free report on LendingClub will help you uncover what's on the horizon.

Is There Enough Growth For LendingClub?

There's an inherent assumption that a company should far outperform the market for P/E ratios like LendingClub's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 60% during the coming year according to the ten analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

With this information, we can see why LendingClub is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

LendingClub's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of LendingClub's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware LendingClub is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than LendingClub. 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.