Yahoo Finance BlackRock, Inc.'s (NYSE:BLK) Business Is Yet to Catch Up With Its Share Price
There wouldn't be many who think BlackRock, Inc.'s (NYSE:BLK) price-to-earnings (or "P/E") ratio of 15.3x is worth a mention when the median P/E in the United States is similar at about 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Recent times haven't been advantageous for BlackRock as its earnings have been rising slower than most other companies. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.
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How Is BlackRock's Growth Trending?
In order to justify its P/E ratio, BlackRock would need to produce growth that's similar to the market.
Retrospectively, the last year delivered a decent 6.9% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 46% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 0.5% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially lower than the 9.6% each year growth forecast for the broader market.
With this information, we find it interesting that BlackRock is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Bottom Line On BlackRock's P/E
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of BlackRock's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
You always need to take note of risks, for example - BlackRock has 1 warning sign we think you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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