Unpleasant Surprises Could Be In Store For Kinsale Capital Group, Inc.'s (NYSE:KNSL) Shares

With a price-to-earnings (or "P/E") ratio of 28.2x Kinsale Capital Group, Inc. (NYSE:KNSL) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Kinsale Capital Group has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Kinsale Capital Group

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How Is Kinsale Capital Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Kinsale Capital Group's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 61% gain to the company's bottom line. The latest three year period has also seen an excellent 198% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 9.1% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 10% per year, which is not materially different.

In light of this, it's curious that Kinsale Capital Group's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Kinsale Capital Group'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.

Our examination of Kinsale Capital Group's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Kinsale Capital Group with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Kinsale Capital Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.