StepStone Group (STEP) has been added to several Russell value indexes, a move that can influence how index funds and institutional investors view the stock. At the same time, its SPI Deal Benchmarking launch with PitchBook is attracting fresh attention.

Despite the index additions and the SPI Deal Benchmarking rollout, StepStone Group’s 1-month share price return declined 16.1% and its year-to-date share price return is down 37.9%, while the 3-year total shareholder return of 82.5% points to a very different long-term picture.

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With StepStone Group’s share price down sharply this year yet still showing a strong 3-year total return, investors are left with a key question: is this recent slide a potential buying window, or is the market already pricing in future growth?

Preferred Price-to-Sales of 1.7x: Is it justified?

For StepStone Group, the current debate starts with its P/S ratio of 1.7x, which sits well below both the US Capital Markets industry and peer averages, yet above the estimated fair P/S level suggested by regression analysis.

P/S compares a company’s market value to its revenue. This can be useful for businesses like StepStone Group where earnings are currently negative and traditional P/E ratios are less meaningful. Investors often look at P/S to gauge how much the market is paying for each dollar of revenue, especially when profits are volatile.

StepStone Group trades at a P/S of 1.7x, while the US Capital Markets industry average is 3.4x and the peer average is 4.2x. This is a sizable gap. However, the estimated fair P/S ratio for the company is 0.8x, so the current 1.7x level sits above where the regression based fair value suggests the multiple could move over time.

Result: Price-to-Sales of 1.7x (ABOUT RIGHT)

However, the recent revenue decline of 4.7% and a net loss of $535.808 million at StepStone Group could challenge confidence in the current valuation story.

Next Steps

If this mix of index attention and weak recent returns around StepStone Group feels conflicting, take a closer look at the numbers yourself and weigh the trade offs, starting with 2 important warning signs

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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.