Cautious Investors Not Rewarding Fidelity National Financial, Inc.'s (NYSE:FNF) Performance Completely

With a median price-to-earnings (or "P/E") ratio of close to 18x in the United States, you could be forgiven for feeling indifferent about Fidelity National Financial, Inc.'s (NYSE:FNF) P/E ratio of 18.2x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

There hasn't been much to differentiate Fidelity National Financial's and the market's retreating earnings lately. The P/E is probably moderate because investors think the company's earnings trend will continue to follow the rest of the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. At the very least, you'd be hoping that earnings don't accelerate downwards if your plan is to pick up some stock while it's not in favour.

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Is There Some Growth For Fidelity National Financial?

There's an inherent assumption that a company should be matching the market for P/E ratios like Fidelity National Financial's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. This isn't what shareholders were looking for as it means they've been left with a 59% decline in EPS over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 24% per year during the coming three years according to the three analysts following the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Fidelity National Financial's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Fidelity National Financial currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive 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 1 warning sign for Fidelity National Financial that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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