With a median price-to-earnings (or "P/E") ratio of close to 17x in the United States, you could be forgiven for feeling indifferent about Coterra Energy Inc.'s (NYSE:CTRA) P/E ratio of 16x.  Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.  

Coterra Energy has been struggling lately as its earnings have declined faster than most other companies.   It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling.  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 it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.    

NYSE:CTRA Price to Earnings Ratio vs Industry May 14th 2024

Keen to find out how analysts think Coterra Energy's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For Coterra Energy?  

There's an inherent assumption that a company should be matching the market for P/E ratios like Coterra Energy's to be considered reasonable.  

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 67%.   However, a few very strong years before that means that it was still able to grow EPS by an impressive 155% in total over the last three years.  So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.  

Turning to the outlook, the next three years should generate growth of 26%  per annum as estimated by the analysts watching the company.  With the market only predicted to deliver 9.9% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Coterra Energy is trading at a fairly similar P/E to the market.  It may be that most investors aren't convinced the company can achieve future growth expectations.  

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Coterra Energy's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted.  When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio.  It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Coterra Energy that you need to be mindful of.  

Of course, you might also be able to find a better stock than Coterra Energy. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.