Cautious investors do not fully reward the performance of RenaissanceRe Holdings Ltd. (NYSE: RNR)
With a median price-to-earnings ratio (or “P / E”) of nearly 18x in the United States, you could be forgiven for being indifferent to RenaissanceRe Holdings Ltd. (NYSE: RNR) P / E ratio of 16.5x. While it doesn’t raise eyebrows, if the P / E ratio isn’t warranted, investors could miss out on a potential opportunity or ignore the looming disappointment.
While the market has seen earnings growth lately, RenaissanceRe Holdings earnings have jumped into high gear, which isn’t great. One possibility is that the P / E is moderate because investors believe this poor earnings performance will reverse. You really hope so, otherwise you are paying a relatively high price for a business with this type of growth profile.
NYSE: RNR Price Based on Past Profits October 6, 2021
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What do the growth indicators tell us about the P / E?
There is an inherent assumption that a company should match the market for P / E ratios like RenaissanceRe Holdings to be considered reasonable.
Looking back first, the company’s earnings per share growth last year was not to be excited about as it posted a disappointing 37% decline. At least BPA has managed not to retreat completely from a total of three years ago, thanks to the earlier growth period. So it seems to us that the company has had a mixed result in terms of earnings growth during this period.
Going forward, EPS is expected to increase by 37% each year for the next three years according to the five analysts who follow the company. This promises to be significantly higher than the 12% annual growth forecast for the market as a whole.
With this information, we find it interesting that RenaissanceRe Holdings is trading at a P / E quite similar to the market. Most investors may not be convinced that the company can meet expectations for future growth.
What can we learn from the P / E of RenaissanceRe Holdings?
While the price-to-earnings ratio shouldn’t be the determining factor whether or not you buy a stock, it’s a pretty effective barometer of earnings expectations.
Our review of RenaissanceRe Holdings ‘analysts’ forecast revealed that its superior earnings outlook is not contributing to its P / E as much as we would have expected. There are some unobserved earnings threats that could prevent the price-to-earnings ratio from matching the positive outlook. It appears that some are indeed anticipating volatility in earnings as these conditions should normally give the stock price a boost.
There are also other vital risk factors to consider before investing and we have discovered 1 warning sign for RenaissanceRe Holdings that you should be aware of.
Sure, you might find a fantastic investment by looking at a few good candidates. So take a look at this free list of companies with a solid growth history, trading at a P / E below 20x.
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