There Is A Reason Liberty Financial Group Limited's (ASX:LFG) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 9.2x Liberty Financial Group Limited (ASX:LFG) may be sending very bullish signals at the moment, given that almost half of all companies in Australia have P/E ratios greater than 22x and even P/E's higher than 41x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Recent times have been advantageous for Liberty Financial Group as its earnings have been rising faster than most other companies. 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.

View our latest analysis for Liberty Financial Group

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

Is There Any Growth For Liberty Financial Group?

The only time you'd be truly comfortable seeing a P/E as depressed as Liberty Financial Group's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 39% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 8.5% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 18% each year, which is noticeably more attractive.

In light of this, it's understandable that Liberty Financial Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Liberty Financial Group's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Liberty Financial Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Liberty Financial Group (including 1 which is a bit concerning).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.