Piper Sandler Companies' (NYSE:PIPR) Shares May Have Run Too Fast Too Soon

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Piper Sandler Companies (NYSE:PIPR) as a stock to potentially avoid with its 21.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Piper Sandler Companies certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Piper Sandler Companies

Although there are no analyst estimates available for Piper Sandler Companies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Piper Sandler Companies?

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

Retrospectively, the last year delivered an exceptional 88% gain to the company's bottom line. Still, incredibly EPS has fallen 38% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's an unpleasant look.

In light of this, it's alarming that Piper Sandler Companies' P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Piper Sandler Companies' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Piper Sandler Companies revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 1 warning sign for Piper Sandler Companies that you should be aware of.

Of course, you might also be able to find a better stock than Piper Sandler Companies. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.