With a price-to-earnings (or "P/E") ratio of 7.6x Everest Group, Ltd. (NYSE:EG) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 31x are not unusual. However, the P/E might be quite low 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, Everest Group has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you 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.
NYSE:EG Price to Earnings Ratio vs Industry February 6th 2024
Keen to find out how analysts think Everest Group's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Everest Group?
The only time you'd be truly comfortable seeing a P/E as depressed as Everest Group's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 296%. Pleasingly, EPS has also lifted 204% 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.
Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 12% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.
In light of this, it's peculiar that Everest Group's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Key Takeaway
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.
Our examination of Everest Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Everest Group that you need to be mindful of.
If these risks are making you reconsider your opinion on Everest Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.