Unipol Gruppo S.p.A.'s (BIT:UNI) Shares Bounce 26% But Its Business Still Trails The Market

The Unipol Gruppo S.p.A. (BIT:UNI) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 129% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Unipol Gruppo's price-to-earnings (or "P/E") ratio of 7.2x might still make it look like a buy right now compared to the market in Italy, where around half of the companies have P/E ratios above 14x and even P/E's above 25x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Unipol Gruppo certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Unipol Gruppo

Keen to find out how analysts think Unipol Gruppo's future stacks up against the industry? In that case, our free report is a great place to start.

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

Unipol Gruppo'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 107% last year. Pleasingly, EPS has also lifted 64% 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.

Turning to the outlook, the next three years should generate growth of 1.0% each year as estimated by the four analysts watching the company. With the market predicted to deliver 13% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Unipol Gruppo's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Unipol Gruppo's P/E

The latest share price surge wasn't enough to lift Unipol Gruppo's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Unipol Gruppo's analyst forecasts revealed that its inferior earnings outlook 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Unipol Gruppo that you need to be mindful of.

If these risks are making you reconsider your opinion on Unipol Gruppo, 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.