There's No Escaping MS&AD Insurance Group Holdings, Inc.'s (TSE:8725) Muted Earnings Despite A 26% Share Price Rise

MS&AD Insurance Group Holdings, Inc. (TSE:8725) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 69% in the last year.

Even after such a large jump in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider MS&AD Insurance Group Holdings as an attractive investment with its 11.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

MS&AD Insurance Group Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

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.

How Is MS&AD Insurance Group Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as MS&AD Insurance Group Holdings' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 148% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 1,545% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 4.2% each year during the coming three years according to the ten analysts following the company. With the market predicted to deliver 10.0% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why MS&AD Insurance Group Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

Despite MS&AD Insurance Group Holdings' shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of MS&AD Insurance Group Holdings' 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with MS&AD Insurance Group Holdings.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.