ClearView Wealth Limited's (ASX:CVW) Share Price Is Still Matching Investor Opinion Despite 31% Slump

Unfortunately for some shareholders, the ClearView Wealth Limited (ASX:CVW) share price has dived 31% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.

Even after such a large drop in price, given close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 19x, you may still consider ClearView Wealth as a stock to avoid entirely with its 33.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, ClearView Wealth's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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How Is ClearView Wealth's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like ClearView Wealth's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 20% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 66% per year over the next three years. With the market only predicted to deliver 18% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that ClearView Wealth's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

ClearView Wealth's shares may have retreated, but its P/E is still flying high. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that ClearView Wealth maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for ClearView Wealth (1 is a bit unpleasant!) that you should be aware of.

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

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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.