The weak U.S. February jobs report, which showed an unexpected drop in employment, weighed on financial stocks as investors reassessed risk. StepStone Group (STEP) saw its share price move lower along with broader sector pressure.

At a last close of US$45.66, StepStone Group’s 1 day share price return of a 4.12% decline followed a weak jobs report, extending a 30 day share price return of a 26.86% decline and a year to date share price return of a 31.45% decline, while the 3 year total shareholder return of 110.92% and 5 year total shareholder return of 70.49% highlight how longer term holders have still seen sizeable gains.

If this news has you thinking about where capital could work differently, it might be worth scanning our screener of 20 top founder-led companies as a starting point for fresh ideas.

With the share price under pressure, revenue growing only modestly at 1.87% and the stock trading at a steep 74.58% discount to the average analyst price target, is this weakness a potential entry point, or is the market already factoring in StepStone’s growth prospects?

Preferred Price to Sales of 2.1x: Is it justified?

StepStone Group trades at a P/S of 2.1x, which screens as cheaper than both its industry and peer averages, yet screens as expensive versus its own fair ratio estimate.

The P/S multiple compares the company’s market value to its revenue, so it can be a useful yardstick for a business like StepStone that is currently loss making. With revenue growth of 1.9% per year forecast and recent earnings losses, investors appear to be anchoring more on revenue resilience and the firm’s role in private markets than on current profitability.

Against that backdrop, StepStone’s 2.1x P/S sits well below the US Capital Markets industry average of 3.6x and the peer average of 4.7x. This suggests the market is applying a lower revenue multiple than many comparable names. However, when stacked up against the estimated fair P/S ratio of 0.8x, the current level looks materially higher. This indicates a valuation the market could move closer to if sentiment or growth expectations soften.

Result: Price-to-Sales of 2.1x (OVERVALUED)

However, modest 1.87% revenue growth and a net loss of US$546.53 million could limit how much investors are willing to pay for StepStone’s future potential.

Next Steps

If this write up leaves you undecided, it may be worth reviewing the underlying data yourself to determine whether the risk reward trade off suits you. You can start with our breakdown of 3 important warning signs.

Looking for more investment ideas?

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• Spot potential value plays early by reviewing our list of 49 high quality undervalued stocks that pair solid fundamentals with prices the market may not be fully appreciating.
• Strengthen your focus on capital protection by checking out 63 resilient stocks with low risk scores, built around companies with more resilient risk profiles.
• Hunt for tomorrow’s potential standouts before they hit the spotlight with our screener containing 24 high quality undiscovered gems based on quality and fundamentals.

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.