Lacklustre Performance Is Driving Athabasca Oil Corporation's (TSE:ATH) Low P/E

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 15x, you may consider Athabasca Oil Corporation (TSE:ATH) as an attractive investment with its 10.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Athabasca Oil hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

View our latest analysis for Athabasca Oil

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Athabasca Oil.

How Is Athabasca Oil's Growth Trending?

Athabasca Oil's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 41%. Still, the latest three year period has seen an excellent 1,322% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 20%, which is noticeably more attractive.

In light of this, it's understandable that Athabasca Oil's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Athabasca Oil's P/E?

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.

As we suspected, our examination of Athabasca Oil's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Athabasca Oil (1 is a bit concerning) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.