NASDAQ:NAVI) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 20x and even P/E’s higher than 38x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.” data-reactid=”28″>With a price-to-earnings (or “P/E”) ratio of 5.6x Navient Corporation (NASDAQ:NAVI) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 20x and even P/E’s higher than 38x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
With earnings that are retreating more than the market’s of late, Navient has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn’t going to improve at all. If you still like the company, you’d want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for Navient ” data-reactid=”30″>Check out our latest analysis for Navient
free report is a great place to start.” data-reactid=”47″>Keen to find out how analysts think Navient’s future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Navient?
The only time you’d be truly comfortable seeing a P/E as depressed as Navient’s is when the company’s growth is on track to lag the market decidedly.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 15%. This means it has also seen a slide in earnings over the longer-term as EPS is down 19% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the seven analysts watching the company. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.
In light of this, it’s peculiar that Navient’s P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Navient’s analyst forecasts revealed that its superior earnings outlook isn’t contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
3 warning signs for Navient (1 shouldn’t be ignored!) that we have uncovered.” data-reactid=”56″>Before you take the next step, you should know about the 3 warning signs for Navient (1 shouldn’t be ignored!) that we have uncovered.
collection of other companies that have grown earnings strongly and trade on P/E’s below 20x.” data-reactid=”57″>If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E’s below 20x.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>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.