Why We're Not Concerned About NobleOak Life Limited's (ASX:NOL) Share Price

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 18x, you may consider NobleOak Life Limited (ASX:NOL) as a stock to avoid entirely with its 40.8x 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.

NobleOak Life hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for NobleOak Life

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NobleOak Life.

Does Growth Match The High P/E?

NobleOak Life's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 69%. The last three years don't look nice either as the company has shrunk EPS by 74% in aggregate. 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 98% per year as estimated by the two analysts watching the company. With the market only predicted to deliver 18% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that NobleOak Life'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 Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of NobleOak Life's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for NobleOak Life that you need to take into consideration.

If you're unsure about the strength of NobleOak Life'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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com