MS&AD Insurance Group Holdings, Inc. (TSE:8725) Might Not Be As Mispriced As It Looks After Plunging 31%

MS&AD Insurance Group Holdings, Inc. (TSE:8725) shareholders won't be pleased to see that the share price has had a very rough month, dropping 31% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 57% in the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about MS&AD Insurance Group Holdings' P/E ratio of 11.4x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for MS&AD Insurance Group Holdings as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

Check out our latest analysis for MS&AD Insurance Group Holdings

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

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

MS&AD Insurance Group Holdings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 132%. The latest three year period has also seen an excellent 172% overall rise in EPS, aided by its short-term performance. 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 22% each year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 9.6% per year growth forecast for the broader market.

With this information, we find it interesting that MS&AD Insurance Group Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On MS&AD Insurance Group Holdings' P/E

Following MS&AD Insurance Group Holdings' share price tumble, its P/E is now hanging on to the median market P/E. 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 MS&AD Insurance Group Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. 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.

Before you settle on your opinion, we've discovered 2 warning signs for MS&AD Insurance Group Holdings (1 is concerning!) that you should be aware of.

Of course, you might also be able to find a better stock than MS&AD Insurance Group Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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