With a price-to-earnings (or “P/E”) ratio of 14.5x FBL Financial Group, Inc. (NYSE:FFG) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E’s higher than 38x 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.
Recent times haven’t been advantageous for FBL Financial Group as its earnings have been falling quicker than most other companies. 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.
See our latest analysis for FBL Financial Group
Is There Any Growth For FBL Financial Group?
In order to justify its P/E ratio, FBL Financial Group would need to produce sluggish growth that’s trailing the market.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 19%. As a result, earnings from three years ago have also fallen 26% overall. Therefore, it’s fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the dual analysts watching the company. That’s shaping up to be similar to the 13% per year growth forecast for the broader market.
In light of this, it’s peculiar that FBL Financial Group’s P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What We Can Learn From FBL Financial Group’s P/E?
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future 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.
You always need to take note of risks, for example – FBL Financial Group has 1 warning sign we think you should be aware of.
If you’re unsure about the strength of FBL Financial Group’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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