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Should You Buy Manning & Napier Inc (NYSE:MN) At This PE Ratio?

Kelly Murphy

I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in Manning & Napier Inc (NYSE:MN).

Manning & Napier Inc (NYSE:MN) is trading with a trailing P/E of 15x, which is lower than the industry average of 16x. While MN might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. See our latest analysis for Manning & Napier

Demystifying the P/E ratio

NYSE:MN PE PEG Gauge June 27th 18

A common ratio used for relative valuation is the P/E ratio. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for MN

Price-Earnings Ratio = Price per share ÷ Earnings per share

MN Price-Earnings Ratio = $3.05 ÷ $0.203 = 15x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to MN, such as company lifetime and products sold. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. Since MN’s P/E of 15x is lower than its industry peers (16x), it means that investors are paying less than they should for each dollar of MN’s earnings. Therefore, according to this analysis, MN is an under-priced stock.

Assumptions to be aware of

Before you jump to the conclusion that MN is the perfect buying opportunity, it is important to realise that our conclusion rests on two assertions. Firstly, our peer group contains companies that are similar to MN. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with MN, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing MN to are fairly valued by the market. If this does not hold, there is a possibility that MN’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Since you may have already conducted your due diligence on MN, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for MN’s future growth? Take a look at our free research report of analyst consensus for MN’s outlook.
  2. Past Track Record: Has MN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of MN’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.