The Market Doesn't Like What It Sees From SBM Offshore N.V.'s (AMS:SBMO) Earnings Yet

SBM Offshore N.V.'s (AMS:SBMO) price-to-earnings (or "P/E") ratio of 5.7x might make it look like a strong buy right now compared to the market in the Netherlands, where around half of the companies have P/E ratios above 17x and even P/E's above 35x are quite common. 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 advantageous for SBM Offshore as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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

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

How Is SBM Offshore's Growth Trending?

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

Retrospectively, the last year delivered a decent 8.3% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 174% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 29% per year during the coming three years according to the four analysts following the company. With the market predicted to deliver 14% growth per year, that's a disappointing outcome.

With this information, we are not surprised that SBM Offshore is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From SBM Offshore's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of SBM Offshore's 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for SBM Offshore you should be aware of, and 2 of them shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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