When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider ConocoPhillips (NYSE:COP) as an attractive investment with its 12.3x 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.
With earnings that are retreating more than the market's of late, ConocoPhillips has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
View our latest analysis for ConocoPhillips
NYSE:COP Price to Earnings Ratio vs Industry January 2nd 2024 Keen to find out how analysts think ConocoPhillips' future stacks up against the industry? In that case, our free report is a great place to start.
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 ConocoPhillips' is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 34% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 2.5% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 13% per annum growth forecast for the broader market.
With this information, we can see why ConocoPhillips is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On ConocoPhillips' P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that ConocoPhillips maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 3 warning signs for ConocoPhillips (1 shouldn't be ignored!) that you need to take into consideration.
Of course, you might also be able to find a better stock than ConocoPhillips. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
