F&G Annuities & Life, Inc. (NYSE:FG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
After such a large drop in price, F&G Annuities & Life's price-to-earnings (or "P/E") ratio of 4.7x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 15x and even P/E's above 30x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
F&G Annuities & Life hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for F&G Annuities & Life
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as depressed as F&G Annuities & Life's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered a frustrating 49% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 150% in total over the last three years. 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.
Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 14% as estimated by the twin analysts watching the company. That's not great when the rest of the market is expected to grow by 5.6%.
In light of this, it's understandable that F&G Annuities & Life's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From F&G Annuities & Life's P/E?
Having almost fallen off a cliff, F&G Annuities & Life's share price has pulled its P/E way down as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that F&G Annuities & Life maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example - F&G Annuities & Life has 1 warning sign we think you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.
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