With the average price-to-earnings (P/E) ratio in the U.S. being nearly 18, it’s no wonder people are indifferent to ON Semiconductor Corporation’s (NASDAQ:ON) P/E ratio of 17.2. While this may not seem like a big deal, if the P/E ratio isn’t justified, investors could be missing out on a potential opportunity or ignoring an impending disappointment.
Recently, ON Semiconductor’s earnings have not fallen as much as the rest of the market, which is a positive for the company. One possibility is that the middling price-to-earnings multiple is due to investors believing that this relatively good earnings track record is about to fade. If you still have confidence in the business, it would be much better if the company did not lose earnings. That being said, as long as the company’s earnings continue to outperform the market, existing shareholders are unlikely to be too pessimistic about the stock.
View our latest analysis for ON Semiconductor
If you want to find out what analysts are predicting going forward, check out this free report on ON Semiconductor.
What are the growth trends for ON Semiconductor?
ON Semiconductor’s P/E ratio is typical for a company that is expected to only grow at a moderate rate, and importantly, perform in line with the market.
Looking back at last year’s revenue, the company reported results that were largely in line with the previous year. However, the years prior to that were strong, allowing the company to grow its EPS by a combined 259% over the past three years. Therefore, it’s fair to say that recent revenue growth has been great for the company.
Looking to the future, analysts covering the company predict that its revenue is expected to grow at 15% annually over the next three years, which would be significantly higher than the overall market forecast of 10% annual growth.
From this information, we find it interesting that ON Semiconductor is trading at a P/E that is fairly close to the market. It seems that some shareholders are skeptical of the forecasts and would be willing to accept a lower selling price.
What can we learn from ON Semiconductor’s P/E?
Generally, we like to limit the use of price-to-earnings ratios to revealing what the market thinks about the overall health of a company.
ON Semiconductor’s expected growth rate is higher than the overall market, which is why the company’s P/E ratio turns out to be trading at a lower than expected level. Some unobserved threats to earnings could be causing the P/E ratio to not match the bright outlook. Such conditions would normally boost stock prices, so it seems some are actually expecting earnings volatility.
Additionally, you should be aware of the 1 warning sign we’ve spotted with ON Semiconductor.
You might find a better investment than ON Semiconductor, and if you’d like to pick some potential companies, check out this free list of interesting companies with low P/E ratios (but which have proven they can grow earnings).
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
