When close to half the companies in France have price-to-earnings ratios (or "P/E's") above 14x, you may consider AXA SA (EPA:CS) as an attractive investment with its 10.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
AXA certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for AXA
How Is AXA's Growth Trending?
In order to justify its P/E ratio, AXA would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 50%. The strong recent performance means it was also able to grow EPS by 46% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 8.1% per year during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 14% growth per year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that AXA's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
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.
We've established that AXA maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 1 warning sign for AXA that you need to be mindful of.
If these risks are making you reconsider your opinion on AXA, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
About ENXTPA:CS
AXA
Through its subsidiaries, provides insurance, asset management, and banking services worldwide.
Undervalued with solid track record and pays a dividend.
