Benign Growth For Bâloise Holding AG (VTX:BALN) Underpins Its Share Price

With a price-to-earnings (or "P/E") ratio of 12x Bâloise Holding AG (VTX:BALN) may be sending bullish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios greater than 21x and even P/E's higher than 35x 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 limited.

Recent times have been advantageous for Bâloise Holding as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Bâloise Holding

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Bâloise Holding's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.4% last year. EPS has also lifted 14% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 3.6% per annum over the next three years. That's not great when the rest of the market is expected to grow by 9.3% per year.

In light of this, it's understandable that Bâloise Holding's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Bâloise Holding's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Bâloise Holding's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Bâloise Holding is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Bâloise Holding'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.