Investors Holding Back On NuVista Energy Ltd. (TSE:NVA)

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 16x, you may consider NuVista Energy Ltd. (TSE:NVA) as a highly attractive investment with its 7.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

NuVista 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. You'd much rather the company wasn't bleeding earnings if you still believe in the business. 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 NuVista Energy

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

How Is NuVista Energy's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. The last three years don't look nice either as the company has shrunk EPS by 44% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 9.5% per annum, which is noticeably less attractive.

In light of this, it's peculiar that NuVista Energy's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On NuVista Energy's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of NuVista 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for NuVista Energy with six simple checks on some of these key factors.

You might be able to find a better investment than NuVista Energy. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.