StepStone Group (STEP) is back on investor screens after recent share price swings, with the stock up over the past month but lower across the past 3 months and year to date.

The recent rebound, including a 7.81% 1 month share price return from a last close of US$46.51, comes after a much weaker 90 day share price return of a 27.99% decline. The 3 year total shareholder return of 114.48% contrasts with a 1 year total shareholder return of an 8.57% decline, suggesting longer term holders are still ahead even as near term momentum has faded.

If you are looking beyond StepStone Group for other ideas in this part of the market, it could be a good time to scan the 20 top founder-led companies

With StepStone still loss making on US$1,782.75m of revenue and trading at a steep discount to the average analyst price target, the key question is whether this is genuine value or if the market already reflects future growth.

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

On a P/S basis, StepStone Group trades at 2.1x, which sits below both the US Capital Markets industry average and its peer group, even after the recent share price rebound.

The P/S ratio compares the company’s market value to its revenue. It is a simple way to see how much investors are paying for each dollar of StepStone’s US$1,782.75m in revenue. For an asset and fee based business like StepStone, this can be a useful yardstick when earnings are currently negative and traditional profit multiples such as P/E are less meaningful.

Compared to the US Capital Markets industry average P/S of 3.1x and a peer average of 4.3x, StepStone’s 2.1x implies the market is pricing it at a considerable discount to similar businesses. However, against an estimated fair P/S of 0.8x, the current level is well above the regression based fair ratio that our models suggest the market could trend toward over time.

Result: Preferred multiple of Price-to-Sales of 2.1x (ABOUT RIGHT)

However, investors still face meaningful risks, including ongoing net losses of US$546.53m and the possibility that the current P/S premium to fair value may compress.

Next Steps

The mixed picture on value and risk might feel unclear, so it makes sense to look at the underlying data yourself and move quickly. Start by reviewing the 3 important warning signs.

Looking for more investment ideas?

If StepStone has sharpened your thinking, do not stop here, use focused stock lists to spot other opportunities before they move out of reach.

• Target resilience first by scanning companies in the 62 resilient stocks with low risk scores that may help steady your portfolio when volatility picks up.
• Hunt for pricing gaps by reviewing the 62 high quality undervalued stocks and see where solid fundamentals and compressed valuations meet.
• Spot potential standouts early by working through the screener containing 25 high quality undiscovered gems.

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.