The PennyMac Financial Services, Inc. (NYSE:PFSI) share price has fared very poorly over the last month, falling by a substantial 29%. The recent drop has obliterated the annual return, with the share price now down 8.4% over that longer period.

Following the heavy fall in price, PennyMac Financial Services' price-to-earnings (or "P/E") ratio of 9.7x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E's above 34x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, PennyMac Financial Services has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think PennyMac Financial Services' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For PennyMac Financial Services?

In order to justify its P/E ratio, PennyMac Financial Services would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 59% gain to the company's bottom line. The latest three year period has also seen a 7.4% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader market.

In light of this, it's peculiar that PennyMac Financial Services' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On PennyMac Financial Services' P/E

PennyMac Financial Services' recently weak share price has pulled its P/E below most other companies. 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.

Our examination of PennyMac Financial Services' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - PennyMac Financial Services has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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

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.