SBM Offshore N.V.'s (AMS:SBMO) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") above 17x, you may consider SBM Offshore N.V. (AMS:SBMO) as a highly attractive investment with its 7.7x 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.

With earnings growth that's superior to most other companies of late, SBM Offshore has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 SBM Offshore

Want the full picture on analyst estimates for the company? Then our free report on SBM Offshore will help you uncover what's on the horizon.

How Is SBM Offshore's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as SBM Offshore's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The latest three year period has also seen an excellent 88% 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.

Turning to the outlook, the next three years should generate growth of 0.5% per year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 13% per annum growth forecast for the broader market.

In light of this, it's understandable that SBM Offshore'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.

The Key Takeaway

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.

We've established that SBM Offshore maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

It is also worth noting that we have found 3 warning signs for SBM Offshore (2 are potentially serious!) that you need to take into consideration.

You might be able to find a better investment than SBM Offshore. 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).

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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.