Why Investors Shouldn't Be Surprised By Baloise Holding AG's (VTX:BALN) P/E

With a price-to-earnings (or "P/E") ratio of 29.9x Baloise Holding AG (VTX:BALN) may be sending bearish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios under 20x and even P/E's lower than 14x 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 as high as it is.

Recent times have been advantageous for Baloise Holding as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Baloise Holding

Want the full picture on analyst estimates for the company? Then our free report on Baloise Holding will help you uncover what's on the horizon.

How Is Baloise Holding's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Baloise Holding's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a worthy increase of 5.9%. However, this wasn't enough as the latest three year period has seen an unpleasant 55% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 27% each year over the next three years. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Baloise Holding'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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Baloise Holding'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Baloise Holding.

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.