EOG Resources, Inc.'s (NYSE:EOG) price-to-earnings (or "P/E") ratio of 11.5x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 14x and even P/E's above 26x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Recent times have been advantageous for EOG Resources as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on EOG Resources.
How Is EOG Resources' Growth Trending?
EOG Resources' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Retrospectively, the last year delivered an exceptional 202% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 9.3% per annum as estimated by the analysts watching the company. That's shaping up to be similar to the 9.6% per year growth forecast for the broader market.
In light of this, it's peculiar that EOG Resources' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Bottom Line On EOG Resources' P/E
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 EOG Resources' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for EOG Resources that you should be aware of.
If these risks are making you reconsider your opinion on EOG Resources, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
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