Zurich Insurance Group AG's (VTX:ZURN) Subdued P/E Might Signal An Opportunity

With a price-to-earnings (or "P/E") ratio of 17.7x Zurich Insurance Group AG (VTX:ZURN) may be sending bullish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios greater than 22x and even P/E's higher than 34x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Zurich Insurance Group certainly has been doing a good job lately as it's been growing earnings more 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Zurich Insurance Group

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

What Are Growth Metrics Telling Us About The Low P/E?

Zurich Insurance Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 17% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

With this information, we find it odd that Zurich Insurance Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Zurich Insurance Group's P/E?

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.

Our examination of Zurich Insurance Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Zurich Insurance Group you should know about.

You might be able to find a better investment than Zurich Insurance Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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