It's not a stretch to say that Freedom Holding Corp.'s (NASDAQ:FRHC) price-to-earnings (or "P/E") ratio of 18.9x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Freedom Holding as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Freedom Holding

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Freedom Holding's earnings, revenue and cash flow.

Is There Some Growth For Freedom Holding?

In order to justify its P/E ratio, Freedom Holding would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. Pleasingly, EPS has also lifted 120% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Freedom Holding is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Freedom Holding currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Freedom Holding.

If these risks are making you reconsider your opinion on Freedom Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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