Essent Group Ltd.'s (NYSE:ESNT) price-to-earnings (or "P/E") ratio of 8.4x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
There hasn't been much to differentiate Essent Group's and the market's retreating earnings lately. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.
NYSE:ESNT Price to Earnings Ratio vs Industry June 11th 2024 Keen to find out how analysts think Essent Group's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Essent Group's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Essent Group's is when the company's growth is on track to lag the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.9%. Still, the latest three year period has seen an excellent 82% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Looking ahead now, EPS is anticipated to climb by 2.5% each year during the coming three years according to the nine analysts following the company. With the market predicted to deliver 10.0% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that Essent Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Essent Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 1 warning sign for Essent Group that we have uncovered.
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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Essent Group Ltd. (NYSE: ESNT)的市盈率为8.4倍,与美国市场上一半以上的公司的市盈率超过17倍,甚至市盈率高达32倍相比,可能看起来像个买卖机会。但我们需要深入挖掘,以确定其较低市盈率的合理基础。