Despite an already strong run, FBL Financial Group, Inc. (NYSE:FFG) shares have been powering on, with a gain of 30% in the last thirty days. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.
In spite of the firm bounce in price, FBL Financial Group may still be sending bullish signals at the moment with its price-to-earnings (or “P/E”) ratio of 14.6x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E’s higher than 37x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With earnings that are retreating more than the market’s of late, FBL Financial Group has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You’d much rather the company wasn’t bleeding earnings if you still believe in the business. Or at the very least, you’d be hoping the earnings slide doesn’t get any worse if your plan is to pick up some stock while it’s out of favour.free report on FBL Financial Group.
What Are Growth Metrics Telling Us About The Low P/E?
There’s an inherent assumption that a company should underperform the market for P/E ratios like FBL Financial Group’s to be considered reasonable.
Retrospectively, the last year delivered a frustrating 19% decrease to the company’s bottom line. As a result, earnings from three years ago have also fallen 26% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the twin analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is not materially different.
In light of this, it’s peculiar that FBL Financial Group’s P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
What We Can Learn From FBL Financial Group’s P/E?
Despite FBL Financial Group’s shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.
We’ve established that FBL Financial Group currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
And what about other risks? Every company has them, and we’ve spotted 2 warning signs for FBL Financial Group you should know about.
Of course, you might also be able to find a better stock than FBL Financial Group. So you may wish to see this free collection of other companies that sit on P/E’s below 20x and have grown earnings strongly.
When trading FBL Financial Group or any other investment, use the platform considered by many to be the Professional’s Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.