Kinsale Capital Group, Inc. (NYSE:KNSL) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance.    Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 15%.  

Even after such a large drop in price, Kinsale Capital Group may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.8x, since almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual.  However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.  

Recent times have been pleasing for Kinsale Capital Group as its earnings have risen in spite of the market's earnings going into reverse.   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.  If not, then existing shareholders might be a little nervous about the viability of the share price.    

NYSE:KNSL Price to Earnings Ratio vs Industry April 27th 2024

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

What Are Growth Metrics Telling Us About The High P/E?  

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

If we review the last year of earnings growth, the company posted a terrific increase of 90%.   The strong recent performance means it was also able to grow EPS by 194% in total over the last three years.  Therefore, it's fair to say the earnings growth recently has been superb for the company.  

Turning to the outlook, the next three years should generate growth of 10%  per year as estimated by the seven analysts watching the company.  With the market predicted to deliver 11% growth  each year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Kinsale Capital Group is trading at a high P/E compared to the market.  It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock.  Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.  

The Final Word

There's still some solid strength behind Kinsale Capital Group's P/E, if not its share price lately.      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.  Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long.  This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Kinsale Capital Group that you need to be mindful of.  

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.