Powszechny Zaklad Ubezpieczen SA's (WSE:PZU) Business And Shares Still Trailing The Market

Powszechny Zaklad Ubezpieczen SA's (WSE:PZU) price-to-earnings (or "P/E") ratio of 9.2x might make it look like a buy right now compared to the market in Poland, where around half of the companies have P/E ratios above 13x 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.

Powszechny Zaklad Ubezpieczen 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Powszechny Zaklad Ubezpieczen

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Is There Any Growth For Powszechny Zaklad Ubezpieczen?

Powszechny Zaklad Ubezpieczen'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 41% last year. Pleasingly, EPS has also lifted 132% 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 eight analysts covering the company suggest earnings should grow by 3.5% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 10% per year, which is noticeably more attractive.

In light of this, it's understandable that Powszechny Zaklad Ubezpieczen's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Powszechny Zaklad Ubezpieczen's 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.

As we suspected, our examination of Powszechny Zaklad Ubezpieczen's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Powszechny Zaklad Ubezpieczen that you need to be mindful of.

If you're unsure about the strength of Powszechny Zaklad Ubezpieczen'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.