LendingClub Corporation (NYSE:LC) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

The LendingClub Corporation (NYSE:LC) share price has fared very poorly over the last month, falling by a substantial 27%. Looking at the bigger picture, even after this poor month the stock is up 54% in the last year.

Even after such a large drop in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may still consider LendingClub as a stock to avoid entirely with its 27.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for LendingClub as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for LendingClub

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

How Is LendingClub's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as LendingClub's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The strong recent performance means it was also able to grow EPS by 139% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 55% per annum during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that LendingClub's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On LendingClub's P/E

Even after such a strong price drop, LendingClub's P/E still exceeds the rest of the market significantly. 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.

We've established that LendingClub maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for LendingClub that you should be aware of.

If you're unsure about the strength of LendingClub's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.