Nelnet (NNI): Examining Valuation Following Recent Share Price Gains

Nelnet (NNI) has delivered a steady performance, with its stock gaining around 7% over the past 3 months and a year-to-date return of nearly 24%. The company's growth, while gradual, has caught the attention of long-term investors looking for consistency.

See our latest analysis for Nelnet.

Nelnet’s share price has quietly built momentum this year, climbing with a 24% year-to-date price return and a total shareholder return of 17.6% over the past 12 months. With solid financial results and a steady advance, recent gains suggest growing optimism about its long-term outlook.

If you’re watching Nelnet’s steady run, this could be the perfect opportunity to broaden your horizons and discover fast growing stocks with high insider ownership

But with shares trading near analyst price targets and only modest underlying growth, the key question is whether Nelnet is a value play or if the recent optimism means the market has already priced in future gains.

Price-to-Earnings of 14.4x: Is it justified?

At a last close price of $131.08, Nelnet trades at a price-to-earnings (P/E) ratio of 14.4x. This positions the stock above both its industry peers and its own historical benchmarks.

The price-to-earnings ratio reflects how much investors are willing to pay per dollar of a company's earnings. For a company like Nelnet, which operates in the diversified financial services sector, the P/E ratio helps gauge whether the market anticipates robust future growth or is being overly optimistic.

Despite Nelnet's recovery in profits over the past year, its 14.4x P/E is notably higher than the US Consumer Finance industry average of 9.9x and the peer group average of 9.8x. Compared to its estimated fair P/E ratio of 13x, Nelnet may be priced for more earnings growth than the fundamentals appear to support.

Explore the SWS fair ratio for Nelnet

Result: Price-to-Earnings of 14.4x (OVERVALUED)

However, slower revenue and profit growth or a pullback from recent price gains could quickly shift investor sentiment and reduce Nelnet's momentum.

Find out about the key risks to this Nelnet narrative.

Another View: Discounted Cash Flow Sends a Different Signal

Taking a step back from earnings multiples, our DCF model gives a drastically different take. According to this approach, Nelnet is actually trading well above its estimated fair value, suggesting it could be overvalued relative to its future cash flows. This method raises the question of whether it challenges the optimism seen in the price-to-earnings view.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nelnet for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Nelnet Narrative

If you see things differently or want a hands-on look at the numbers, it takes just a few minutes to chart your own story. Do it your way

A great starting point for your Nelnet research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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.

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