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Manning & Napier, Inc.'s (NYSE:MN) price-to-earnings (or "P/E") ratio of 23.2x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E's below 10x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
Manning & Napier has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Manning & Napier will help you shine a light on its historical performance.
How Is Manning & Napier's Growth Trending?
In order to justify its P/E ratio, Manning & Napier would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 65% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
In contrast to the company, the rest of the market is expected to grow by 5.2% over the next year, which really puts the company's recent medium-term earnings decline into perspective.
With this information, we find it concerning that Manning & Napier is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
What We Can Learn From Manning & Napier's P/E?
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.
We've established that Manning & Napier currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
There are also other vital risk factors to consider and we've discovered 4 warning signs for Manning & Napier (1 doesn't sit too well with us!) that you should be aware of before investing here.
If these risks are making you reconsider your opinion on Manning & Napier, 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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