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Kennedy-Wilson Holdings, Inc.'s (NYSE:KW) Shares May Have Run Too Fast Too Soon

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It's not a stretch to say that Kennedy-Wilson Holdings, Inc.'s (NYSE:KW) price-to-earnings (or "P/E") ratio of 16.2x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Kennedy-Wilson Holdings certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 Kennedy-Wilson Holdings

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kennedy-Wilson Holdings.

Does Growth Match The P/E?

In order to justify its P/E ratio, Kennedy-Wilson Holdings 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 43%. Pleasingly, EPS has also lifted 376% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 135% as estimated by the three analysts watching the company. With the market predicted to deliver 5.6% growth , that's a disappointing outcome.

With this information, we find it concerning that Kennedy-Wilson Holdings is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

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.

Our examination of Kennedy-Wilson Holdings' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with Kennedy-Wilson Holdings (including 2 which don't sit too well with us).

If these risks are making you reconsider your opinion on Kennedy-Wilson Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.

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