What Jack Henry & Associates, Inc.'s (NASDAQ:JKHY) P/E Is Not Telling You
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Jack Henry & Associates, Inc. (NASDAQ:JKHY) as a stock to avoid entirely with its 46.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Jack Henry & Associates has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Jack Henry & Associates
Want the full picture on analyst estimates for the company? Then our free report on Jack Henry & Associates will help you uncover what's on the horizon.
Is There Enough Growth For Jack Henry & Associates?
The only time you'd be truly comfortable seeing a P/E as steep as Jack Henry & Associates' is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.8% last year. The solid recent performance means it was also able to grow EPS by 14% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 7.8% per year during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.
With this information, we find it concerning that Jack Henry & Associates is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.
The Bottom Line On Jack Henry & Associates' P/E
The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Jack Henry & Associates currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places 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 Jack Henry & Associates that you should be aware of.
If you're unsure about the strength of Jack Henry & Associates' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
