NASDAQ:LX) 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 19x 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 8.9x LexinFintech Holdings Ltd. (NASDAQ:LX) 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 19x 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.
LexinFintech Holdings has been struggling lately as its earnings have declined faster than most other companies. 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. Or at the very least, you’d be hoping the earnings slide doesn’t get any worse if your plan is to pick up some stock while it’s out of favour.
See our latest analysis for LexinFintech Holdings ” data-reactid=”30″>See our latest analysis for LexinFintech Holdings
free report on LexinFintech Holdings will help you uncover what’s on the horizon.” data-reactid=”47″>Want the full picture on analyst estimates for the company? Then our free report on LexinFintech Holdings will help you uncover what’s on the horizon.
How Is LexinFintech Holdings’ Growth Trending?
There’s an inherent assumption that a company should far underperform the market for P/E ratios like LexinFintech Holdings’ to be considered reasonable.
Retrospectively, the last year delivered a frustrating 49% decrease to the company’s bottom line. Unfortunately, that’s brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 40% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 12% per year, which is noticeably less attractive.
With this information, we find it odd that LexinFintech Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
Using the price-to-earnings ratio alone to determine if you should sell your stock isn’t sensible, however it can be a practical guide to the company’s future prospects.
We’ve established that LexinFintech Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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 LexinFintech Holdings (1 is a bit concerning) you should be aware of.” data-reactid=”56″>Don’t forget that there may be other risks. For instance, we’ve identified 3 warning signs for LexinFintech Holdings (1 is a bit concerning) you should be aware of.
list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).” data-reactid=”57″>You might be able to find a better investment than LexinFintech Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected].
