Brookfield Reinsurance Ltd.'s (NYSE:BNRE) Subdued P/E Might Signal An Opportunity

Brookfield Reinsurance Ltd.'s (NYSE:BNRE) price-to-earnings (or "P/E") ratio of 7.1x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 33x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

As an illustration, earnings have deteriorated at Brookfield Reinsurance over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Brookfield Reinsurance

Although there are no analyst estimates available for Brookfield Reinsurance, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Brookfield Reinsurance's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 41% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 2,512% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Brookfield Reinsurance's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

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.

Our examination of Brookfield Reinsurance revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

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

Of course, you might also be able to find a better stock than Brookfield Reinsurance. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.