Nu Skin Enterprises, Inc. (NYSE:NUS) Could Be Riskier Than It Looks

It's not a stretch to say that Nu Skin Enterprises, Inc.'s (NYSE:NUS) price-to-earnings (or "P/E") ratio of 14.6x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 16x. 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, Nu Skin Enterprises 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 Nu Skin Enterprises

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nu Skin Enterprises.

Does Growth Match The P/E?

In order to justify its P/E ratio, Nu Skin Enterprises would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 54%. However, this wasn't enough as the latest three year period has seen a very unpleasant 60% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 43% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.

With this information, we find it interesting that Nu Skin Enterprises is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Nu Skin Enterprises' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Nu Skin Enterprises (1 is a bit concerning!) that we have uncovered.

Of course, you might also be able to find a better stock than Nu Skin Enterprises. 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.