There Is A Reason Genworth Financial, Inc.'s (NYSE:GNW) Price Is Undemanding

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Genworth Financial, Inc. (NYSE:GNW) as a highly attractive investment with its 7.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Genworth Financial could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

Check out our latest analysis for Genworth Financial

Keen to find out how analysts think Genworth Financial's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Genworth Financial?

The only time you'd be truly comfortable seeing a P/E as depressed as Genworth Financial's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 45%. This means it has also seen a slide in earnings over the longer-term as EPS is down 6.4% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 11% as estimated by the one analyst watching the company. With the market predicted to deliver 10% growth , that's a disappointing outcome.

With this information, we are not surprised that Genworth Financial is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Genworth Financial's P/E?

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.

As we suspected, our examination of Genworth Financial's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Genworth Financial you should know about.

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.