TotalEnergies SE's (EPA:TTE) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 7.1x TotalEnergies SE (EPA:TTE) may be sending very bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 15x and even P/E's higher than 26x are not unusual. 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.

Recent times have been pleasing for TotalEnergies as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for TotalEnergies

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What Are Growth Metrics Telling Us About The Low P/E?

TotalEnergies' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a decent 15% gain to the company's bottom line. The latest three year period has also seen an excellent 273% overall rise in EPS, aided somewhat 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 growth is heading into negative territory, declining 1.6% each year over the next three years. Meanwhile, the broader market is forecast to expand by 15% each year, which paints a poor picture.

With this information, we are not surprised that TotalEnergies is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of TotalEnergies' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for TotalEnergies (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on TotalEnergies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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