With a price-to-earnings (or "P/E") ratio of 12.5x Kosmos Energy Ltd. (NYSE:KOS) may be sending 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 32x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
With earnings that are retreating more than the market's of late, Kosmos Energy has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Kosmos Energy's 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 Kosmos Energy's is when the company's growth is on track to lag the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.6%. 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.
Looking ahead now, EPS is anticipated to climb by 39% per annum during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.
In light of this, it's peculiar that Kosmos Energy's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Key Takeaway
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Kosmos Energy currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Kosmos Energy you should know about.
If these risks are making you reconsider your opinion on Kosmos Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.
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Kosmos Energy Ltd.(紐約證券交易所代碼:KOS)的市盈率(或 “市盈率”)爲12.5倍,目前可能正在發出看漲信號,因爲美國幾乎有一半公司的市盈率超過17倍,甚至市盈率高於32倍也並不罕見。但是,市盈率之低可能是有原因的,需要進一步調查以確定其是否合理。