Hanwha General Insurance Co., Ltd.'s (KRX:000370) Shares Not Telling The Full Story

With a price-to-earnings (or "P/E") ratio of 2.2x Hanwha General Insurance Co., Ltd. (KRX:000370) may be sending very bullish signals at the moment, given that almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 23x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Hanwha General Insurance 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.

See our latest analysis for Hanwha General Insurance

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hanwha General Insurance.

Is There Any Growth For Hanwha General Insurance?

In order to justify its P/E ratio, Hanwha General Insurance would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 245% in total over the last three years. 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 21% per year as estimated by the five analysts watching the company. That's shaping up to be similar to the 20% per annum growth forecast for the broader market.

In light of this, it's peculiar that Hanwha General Insurance's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

Our examination of Hanwha General Insurance's analyst forecasts revealed that its market-matching 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 outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Hanwha General Insurance that you should be aware of.

If you're unsure about the strength of Hanwha General Insurance's 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.