Sun Life Financial Inc.'s (TSE:SLF) Prospects Need A Boost To Lift Shares
When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 17x, you may consider Sun Life Financial Inc. (TSE:SLF) as an attractive investment with its 13.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Sun Life Financial could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.
Check out our latest analysis for Sun Life Financial
Want the full picture on analyst estimates for the company? Then our free report on Sun Life Financial will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Sun Life Financial's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 6.9% drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 17% per year, which is noticeably more attractive.
In light of this, it's understandable that Sun Life Financial's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On Sun Life Financial's P/E
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.
As we suspected, our examination of Sun Life Financial's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.
A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Sun Life Financial with six simple checks will allow you to discover any risks that could be an issue.
You might be able to find a better investment than Sun Life Financial. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
This article by Simply Wall St is general in nature. 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.
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