Investors Aren't Entirely Convinced By Great-West Lifeco Inc.'s (TSE:GWO) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 14x in Canada, you could be forgiven for feeling indifferent about Great-West Lifeco Inc.'s (TSE:GWO) P/E ratio of 14.1x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Great-West Lifeco has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. 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 it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Check out our latest analysis for Great-West Lifeco

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

Is There Some Growth For Great-West Lifeco?

Great-West Lifeco's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 21%. The last three years don't look nice either as the company has shrunk EPS by 3.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 8.6% per year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Great-West Lifeco's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Great-West Lifeco'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 Great-West Lifeco currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Great-West Lifeco that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.