International Society of the Old Republic (NYSE: ORI) a price / earnings (or “P / E”) ratio of 5.2x could make it look like a solid buy right now relative to the US market, where about half of companies have P / E ratios above 18x and even P / E above 37x are quite common. However, the P / E can be quite low for a reason and requires further investigation to determine if it is warranted.
The recent times have been good for Old Republic International as their profits have grown faster than most other companies. Many may expect the strong earnings performance to worsen significantly, which dampened the P / E. Otherwise, existing shareholders have reason to be quite optimistic about the future direction of the share price.
NYSE: ORI price based on past earnings on January 5, 2022
free Old Republic International report
Is there any growth for Old Republic International?
Old Republic International’s P / E ratio would be typical of a business that is expected to generate very little growth or even declining profits, and most importantly, much worse performance than the market.
Looking back, we see that the company increased earnings per share by an impressive 351% last year. The last three-year period also saw an excellent overall 75% increase in EPS, aided by its short-term performance. Therefore, it is fair to say that profit growth has recently been superb for the company.
Looking ahead, EPS is expected to collapse, contracting 38% in the coming year, according to the two analysts who follow the company. Meanwhile, the wider market is expected to increase by 11%, which paints a bad picture.
With this information, we are not surprised that Old Republic International is trading at a lower P / E than the market. However, declining earnings are unlikely to lead to a stable long-term P / E. Even just maintaining these prices could be elusive as the weak outlook weighs on equities.
The key to take away
It is argued that the price / earnings ratio is a lower measure of value in some industries, but it can be a powerful indicator of corporate sentiment.
We have determined that Old Republic International is keeping its P / E low on its weak forecast for declining earnings, as expected. At this point, investors believe that the potential for improving earnings is not large enough to justify a higher price-to-earnings ratio. It is difficult to see the share price rise sharply in the near future under these circumstances.
Before you decide, we discovered 1 warning sign for Old Republic International that you need to be aware of.
You may be able to find a better investment than Old Republic International. If you want a selection of possible candidates, check out this free List of interesting companies that are trading at a P / E of less than 20x (but have proven that they can increase their profits).
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