Zavarovalnica Triglav, d.d.'s (LJSE:ZVTG) Share Price Not Quite Adding Up

It's not a stretch to say that Zavarovalnica Triglav, d.d.'s (LJSE:ZVTG) price-to-earnings (or "P/E") ratio of 9.8x right now seems quite "middle-of-the-road" compared to the market in Slovenia, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, Zavarovalnica Triglav d.d has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Zavarovalnica Triglav d.d

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

Is There Some Growth For Zavarovalnica Triglav d.d?

In order to justify its P/E ratio, Zavarovalnica Triglav d.d would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. The latest three year period has also seen an excellent 106% 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 11% per annum as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

With this information, we find it interesting that Zavarovalnica Triglav d.d is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Zavarovalnica Triglav d.d currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Zavarovalnica Triglav d.d you should know about.

You might be able to find a better investment than Zavarovalnica Triglav d.d. 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.