CVR Energy, Inc.'s (NYSE:CVI) Business And Shares Still Trailing The Market
With a price-to-earnings (or "P/E") ratio of 4x CVR Energy, Inc. (NYSE:CVI) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Recent times have been pleasing for CVR Energy as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for CVR Energy
If you'd like to see what analysts are forecasting going forward, you should check out our free report on CVR Energy.
Is There Any Growth For CVR Energy?
In order to justify its P/E ratio, CVR Energy would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 134%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 51% per annum during the coming three years according to the five analysts following the company. That's not great when the rest of the market is expected to grow by 12% each year.
In light of this, it's understandable that CVR Energy's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From CVR Energy's P/E?
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.
We've established that CVR Energy maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 3 warning signs for CVR Energy (of which 1 makes us a bit uncomfortable!) you should know about.
If you're unsure about the strength of CVR Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
