Investors Aren't Entirely Convinced By MS&AD Insurance Group Holdings, Inc.'s (TSE:8725) Earnings

There wouldn't be many who think MS&AD Insurance Group Holdings, Inc.'s (TSE:8725) price-to-earnings (or "P/E") ratio of 13.4x is worth a mention when the median P/E in Japan is similar at about 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, MS&AD Insurance Group Holdings has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

In order to justify its P/E ratio, MS&AD Insurance Group Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 132% gain to the company's bottom line. Pleasingly, EPS has also lifted 173% 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 nine analysts covering the company suggest earnings should grow by 19% per year over the next three years. With the market only predicted to deliver 9.7% each year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that MS&AD Insurance Group Holdings is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From MS&AD Insurance Group Holdings' P/E?

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.

Our examination of MS&AD Insurance Group Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with MS&AD Insurance Group Holdings.

If you're unsure about the strength of MS&AD Insurance Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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