It's A Story Of Risk Vs Reward With Globe Life Inc. (NYSE:GL)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Globe Life Inc. (NYSE:GL) as an attractive investment with its 14.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Globe Life could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Globe Life

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Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.7%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 25% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 16% per year as estimated by the eight analysts watching the company. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Globe Life's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Globe Life currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Globe Life that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.