The Market Doesn't Like What It Sees From Powszechny Zaklad Ubezpieczen SA's (WSE:PZU) Earnings Yet

Powszechny Zaklad Ubezpieczen SA's (WSE:PZU) price-to-earnings (or "P/E") ratio of 8.5x 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 12x and even P/E's above 21x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Powszechny Zaklad Ubezpieczen as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Powszechny Zaklad Ubezpieczen

Want the full picture on analyst estimates for the company? Then our free report on Powszechny Zaklad Ubezpieczen will help you uncover what's on the horizon.

Is There Any Growth For Powszechny Zaklad Ubezpieczen?

There's an inherent assumption that a company should underperform the market for P/E ratios like Powszechny Zaklad Ubezpieczen's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 132% 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 eight analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is noticeably more attractive.

With this information, we can see why Powszechny Zaklad Ubezpieczen is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Powszechny Zaklad Ubezpieczen maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Powszechny Zaklad Ubezpieczen that you should be aware of.

You might be able to find a better investment than Powszechny Zaklad Ubezpieczen. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.