Public Companies

ASGN Incorporated's (NYSE:ASGN) Share Price Could Signal Some Risk

With a price-to-earnings (or "P/E") ratio of 27x ASGN Incorporated (NYSE:ASGN) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 20x and even P/E's lower than 11x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

ASGN's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

peNYSE:ASGN Price Based on Past Earnings May 3rd 2021

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ASGN.

How Is ASGN's Growth Trending?

In order to justify its P/E ratio, ASGN would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 24% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 12% as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 18%, which is noticeably more attractive.

In light of this, it's alarming that ASGN's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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 ASGN's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near 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 high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ASGN that you need to be mindful of.

Of course, you might also be able to find a better stock than ASGN. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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