What ACI Worldwide, Inc.'s (NASDAQ:ACIW) P/E Is Not Telling You

With a median price-to-earnings (or "P/E") ratio of close to 19x in the United States, you could be forgiven for feeling indifferent about ACI Worldwide, Inc.'s (NASDAQ:ACIW) P/E ratio of 17.5x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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With earnings growth that's superior to most other companies of late, ACI Worldwide has been doing relatively well. It might be that many expect the strong earnings performance to wane, 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.

See our latest analysis for ACI Worldwide

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

Does Growth Match The P/E?

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

Retrospectively, the last year delivered an exceptional 90% gain to the company's bottom line. The latest three year period has also seen an excellent 107% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings growth is heading into negative territory, declining 0.09% per annum over the next three years. With the market predicted to deliver 10% growth each year, that's a disappointing outcome.

With this information, we find it concerning that ACI Worldwide is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that ACI Worldwide currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for ACI Worldwide you should be aware of, and 1 of them shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.