Should You Be Tempted To Buy Janus Henderson Group plc (NYSE:JHG) Because Of Its PE Ratio?
Janus Henderson Group plc (NYSE:JHG) is trading with a trailing P/E of 8.1x, which is lower than the industry average of 16.6x. While JHG 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. Today, 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 Janus Henderson Group
What you need to know about the P/E ratio
The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for JHG
Price-Earnings Ratio = Price per share ÷ Earnings per share
JHG Price-Earnings Ratio = $32.16 ÷ $3.971 = 8.1x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to JHG, such as capital structure and profitability. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. JHG’s P/E of 8.1x is lower than its industry peers (16.6x), which implies that each dollar of JHG’s earnings is being undervalued by investors. Therefore, according to this analysis, JHG is an under-priced stock.
Assumptions to be aware of
While our conclusion might prompt you to buy JHG immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to JHG, or else the difference in P/E might be a result of other factors. For example, if you compared lower risk firms with JHG, 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 JHG to are fairly valued by the market. If this does not hold, there is a possibility that JHG’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 JHG, 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 highly recommend you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for JHG’s future growth? Take a look at our free research report of analyst consensus for JHG’s outlook.
Past Track Record: Has JHG 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 JHG’s historicals for more clarity.
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.
