Victory Capital Holdings, Inc. (NASDAQ: VCTR) share price matches its earnings
Victory Capital Holdings, Inc. of (NASDAQ: VCTR) price-to-earnings (or “P / E”) ratio of 8.4x could give the impression of a solid buy right now compared to the US market, where about half of companies have E reports above 20x and even P / E above 39x are quite common. However, the P / E can be quite low for a reason and it takes further investigation to determine if it is warranted.
The recent times have been good for Victory Capital Holdings as its profits have grown faster than most other companies. Many may be expecting the strong earnings performance to worsen significantly, which put the P / E down. If you like the company, you hope you don’t so you can potentially recover stocks while they are in disgrace.
NasdaqGS: VCTR price based on past earnings as of May 13, 2021
Want to know how analysts think the future of Victory Capital Holdings compares to that of the industry? In this case, our free report is a great place to start.
What do the growth indicators tell us about the low P / E?
In order to justify its P / E ratio, Victory Capital Holdings would need to produce anemic growth that is lagging considerably behind the market.
In retrospect, last year generated an exceptional gain of 63% on the company’s bottom line. The last three-year period also saw an excellent overall increase of 478% in EPS, supported by its near-term performance. Therefore, it is fair to say that profit growth has recently been superb for the company.
Looking ahead, estimates from the nine analysts covering the company suggest earnings are expected to grow 5.6% annually over the next three years. Meanwhile, the rest of the market is expected to grow by 14% each year, which is definitely more attractive.
With this information we can see why Victory Capital Holdings is trading at a lower P / E than the market. It appears that most investors expect limited future growth and are only prepared to pay a reduced amount for the stock.
The key to take away
We would say that the power of the price / earnings ratio is not primarily a valuation instrument, but rather for gauging current investor sentiment and future expectations.
We have established that Victory Capital Holdings maintains its low P / E on its expected low growth being below the overall market as expected. Right now, shareholders are accepting the low P / E as they concede that future earnings are unlikely to provide any pleasant surprises. Unless these conditions improve, they will continue to act as a barrier to the share price around these levels.
There are also other vital risk factors to consider before investing and we have discovered 2 warning signs for Victory Capital Holdings that you need to be aware of.
Of course, you might also be able to find better stock than Victory Capital Holdings. Then you might want to see this free collection of other companies that are on P / E less than 20x and which have significantly increased their profits.
This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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