Unum Group's (NYSE:UNM) Earnings Are Not Doing Enough For Some Investors
Unum Group (NYSE:UNM) has an attractive P/E ratio of 8.5x compared to the market average, but concerns about future growth are affecting investor sentiment. Despite a strong earnings growth of 24% over the past year and a 65% increase in EPS over three years, analysts project a modest growth of 6.4% per annum for the next three years, lower than the market's 11% forecast. This outlook contributes to Unum's low P/E, indicating that investors expect limited future growth, making significant share price increases unlikely in the near term.
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Unum Group (NYSE:UNM) as a highly attractive investment with its 8.5x 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 so limited.
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Unum Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you 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.
View our latest analysis for Unum Group
Keen to find out how analysts think Unum Group's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Unum Group's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Unum Group's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 24%. Pleasingly, EPS has also lifted 65% in aggregate from three years ago, thanks to the last 12 months of growth. 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 6.4% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 11% per annum growth forecast for the broader market.
With this information, we can see why Unum Group is trading at a P/E lower than the market. 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
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 Unum Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Unum Group 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 Unum Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
