There wouldn't be many who think PG&E Corporation's (NYSE:PCG) price-to-earnings (or "P/E") ratio of 16.9x is worth a mention when the median P/E in the United States is similar at about 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
With its earnings growth in positive territory compared to the declining earnings of most other companies, PG&E has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Is There Some Growth For PG&E?
The only time you'd be comfortable seeing a P/E like PG&E's is when the company's growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a terrific increase of 21%. The latest three year period has also seen an excellent 192% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 11% each year over the next three years. With the market predicted to deliver 11% growth per year, the company is positioned for a comparable earnings result.
In light of this, it's understandable that PG&E's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What We Can Learn From PG&E's P/E?
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of PG&E's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for PG&E (1 doesn't sit too well with us!) that we have uncovered.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.
