Recent moves in StepStone Group (STEP) have been closely tied to macro data, with stronger-than-expected inflation readings and shifting Federal Reserve rate expectations pressuring financial and private-market-focused stocks.

The US$43.14 share price reflects a sharp reset, with a 30 day share price return of 39.0% and a year to date share price return of 35.2%. However, the 3 year total shareholder return of 60.3% and 5 year total shareholder return of 55.0% still show a much stronger longer run outcome, so recent momentum looks to be fading as investors reassess risk around private markets exposure.

If recent volatility in private markets is making you look wider, it could be a good time to scout for other asset managers and alternatives specialists through our 19 top founder-led companies.

With StepStone now trading at US$43.14 after a tough patch for private market names, the key question is whether recent weakness has overshot fundamentals or if the market is already factoring in whatever growth lies ahead.

Preferred Price-to-Sales of 1.9x: Is it justified?

StepStone shares closed at $43.14, and the current P/S of 1.9x places the company at a discount to many peers, yet still above its own estimated fair level.

The P/S ratio compares the market value of the company to its revenue and is often used for businesses where earnings are volatile or negative. This fits StepStone, as it is currently unprofitable with a reported net income loss of $546.525m.

Against the US Capital Markets industry average of 3.6x and a peer group average of 4.4x, StepStone's 1.9x P/S implies the market is pricing its revenue meaningfully lower than many competitors. However, when you compare that same 1.9x to the estimated fair P/S of 0.8x, the current level looks expensive relative to the regression based fair ratio that our models suggest the market could gravitate toward over time.

Result: Price-to-Sales of 1.9x (ABOUT RIGHT)

However, you still have to weigh risks such as a reported net income loss of US$546.525m and a 26.4% 1-year total return decline, which could keep sentiment cautious.

Next Steps

If the mixed tone of this article leaves you unsure, do not sit on the fence. Check the full risk rundown for yourself with 3 important warning signs.

Looking for more investment ideas?

If this update on StepStone has you thinking about what else is out there, do not just watch from the sidelines. Put a shortlist of new ideas together.

• Start with quality by checking companies that pass our balance sheet and fundamentals checks through the solid balance sheet and fundamentals stocks screener (39 results).
• Hunt for mispriced opportunities by reviewing our 46 high quality undervalued stocks, which filters for companies with strong fundamentals at comparatively lower valuations.
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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.