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Shares of Aflac Incorporated (NYSE:AFL) are lagging the market, but so is the company

Shares of Aflac Incorporated (NYSE:AFL) are lagging the market, but so is the company

With a price-to-earnings ratio (or “P/E”) of 9.6x Aflac Incorporated (NYSE:AFL) may be sending bullish signals at this point, as nearly half of all companies in the United States have a price-to-earnings ratio of more than 17x, and even price-to-earnings ratios of more than 32x are not uncommon. However, we need to dig a little deeper to determine whether there is a rational basis for the reduced price-to-earnings ratio.

Aflac has certainly done well lately, as earnings growth has been positive while most other companies have seen their earnings decline. It is possible that many expect the strong earnings performance to deteriorate significantly, possibly more than the market, which has suppressed the P/E. If not, existing shareholders have reason to be quite optimistic about the future direction of the stock price.

View our latest analysis for Aflac

pe-multiple-vs-industry
NYSE:AFL Price Earnings Ratio vs. Sector July 11, 2024

Want to know how analysts think Aflac’s future stacks up against the industry? If so, our free report is a good starting point.

Is there any growth for Aflac?

To justify the price/earnings ratio, Aflac would have to show slow growth that lags the market.

If we look at the last year of profit growth, the company has seen a whopping 25% increase. Earnings per share have also increased by 21% overall compared to three years ago, largely due to the growth in the last 12 months. So we can start by confirming that the company has indeed done a good job of growing profits in that time.

Looking at the outlook, the next three years should bring diminishing returns, with earnings falling by 7.1% per year, as estimated by the ten analysts covering the company. With a market expected to grow by 10% per year, that is a disappointing outcome.

In light of this, it is understandable that Aflac’s price-earnings ratio would be below that of most other companies. However, there is no guarantee that the price-earnings ratio has bottomed out with earnings in decline. Even maintaining these prices could be difficult as the weak outlook weighs on the stock.

The last word

While the price-earnings ratio should not be the deciding factor in whether or not to buy a stock, it is a good indicator of earnings expectations.

As we suspected, our review of Aflac’s analyst forecasts revealed that the outlook for shrinking earnings is contributing to the low P/E ratio. For now, shareholders are accepting the low P/E ratio because they recognize that future earnings are unlikely to produce any pleasant surprises. Unless these conditions improve, they will continue to act as a barrier to the stock price around these levels.

That being said, be aware Aflac shows 1 warning sign in our investment analysis, you should know about this.

If you uncertain about the strength of Aflac’s businesswhy not check out our interactive list of stocks with solid business fundamentals for other companies you may have missed.

Valuation is complex, but we make it simple.

Find out if Aflac may be over or undervalued by looking at our comprehensive analysis, which includes: fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the free analysis

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This article from Simply Wall St is general in nature. We comment solely on historical data and analyst forecasts, using an objective methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or financial situation. We aim to provide you with a long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the shares mentioned.

Valuation is complex, but we make it simple.

Find out if Aflac may be over or undervalued by looking at our comprehensive analysis, which includes the following fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the free analysis

Do you have feedback on this article? Are you concerned about the content? Please contact us directly. You can also send an email to [email protected]