Insufficient Growth At Assicurazioni Generali S.p.A. (BIT:G) Hampers Share Price

When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") above 14x, you may consider Assicurazioni Generali S.p.A. (BIT:G) as an attractive investment with its 9.8x 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.

With earnings growth that's superior to most other companies of late, Assicurazioni Generali has been doing relatively well. 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.

View our latest analysis for Assicurazioni Generali

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Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 60% last year. Pleasingly, EPS has also lifted 93% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 6.4% each year over the next three years. With the market predicted to deliver 18% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Assicurazioni Generali'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 Bottom Line On Assicurazioni Generali'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.

As we suspected, our examination of Assicurazioni Generali's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Assicurazioni Generali.

If these risks are making you reconsider your opinion on Assicurazioni Generali, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com