Byron Energy Limited (ASX:BYE) Might Not Be As Mispriced As It Looks After Plunging 27%

Unfortunately for some shareholders, the Byron Energy Limited (ASX:BYE) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

After such a large drop in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may consider Byron Energy as a highly attractive investment with its 3.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Byron Energy has been struggling lately as its earnings have declined faster than most other companies. 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.

Check out our latest analysis for Byron Energy

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

How Is Byron Energy's Growth Trending?

In order to justify its P/E ratio, Byron Energy would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 65% decrease to the company's bottom line. Even so, admirably EPS has lifted 3,373% in aggregate from three years ago, notwithstanding the last 12 months. 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 39% each year as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 18% per year growth forecast for the broader market.

With this information, we find it odd that Byron Energy is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Byron Energy's P/E looks about as weak as its stock price lately. 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.

Our examination of Byron Energy's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Byron Energy.

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.