Stewart Information Services Corporation's (NYSE:STC) Price In Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 43x Stewart Information Services Corporation (NYSE:STC) 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 18x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, Stewart Information Services has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Stewart Information Services

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

Is There Enough Growth For Stewart Information Services?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Stewart Information Services' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 84% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 154% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 15%, which is noticeably less attractive.

With this information, we can see why Stewart Information Services is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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 Stewart Information Services' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Stewart Information Services (1 doesn't sit too well with us) you should be aware of.

Of course, you might also be able to find a better stock than Stewart Information Services. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.