Market Still Lacking Some Conviction On Reinsurance Group of America, Incorporated (NYSE:RGA)

There wouldn't be many who think Reinsurance Group of America, Incorporated's (NYSE:RGA) price-to-earnings (or "P/E") ratio of 16x is worth a mention when the median P/E in the United States is similar at about 17x. 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.

Reinsurance Group of America certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Reinsurance Group of America

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How Is Reinsurance Group of America's Growth Trending?

The only time you'd be comfortable seeing a P/E like Reinsurance Group of America's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 52% last year. Pleasingly, EPS has also lifted 36% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.

With this information, we find it interesting that Reinsurance Group of America is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Reinsurance Group of America 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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Reinsurance Group of America you should know about.

You might be able to find a better investment than Reinsurance Group of America. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.