Investors Appear Satisfied With Morgan Stanley's (NYSE:MS) Prospects

There wouldn't be many who think Morgan Stanley's (NYSE:MS) price-to-earnings (or "P/E") ratio of 16.3x is worth a mention when the median P/E in the United States is similar at about 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Morgan Stanley has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Morgan Stanley

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

How Is Morgan Stanley's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Morgan Stanley's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.7% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 20% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 9.8% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 10% per annum growth forecast for the broader market.

With this information, we can see why Morgan Stanley is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

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 Morgan Stanley maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Morgan Stanley, and understanding these should be part of your investment process.

If you're unsure about the strength of Morgan Stanley'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.