Stock Analysis

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

Source: Shutterstock

When close to half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") above 16x, you may consider OCI N.V. (AMS:OCI) as a highly attractive investment with its 4.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for OCI 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.

View our latest analysis for OCI

ENXTAM:OCI Price Based on Past Earnings March 25th 2023
Keen to find out how analysts think OCI's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For OCI?

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

If we review the last year of earnings growth, the company posted a terrific increase of 116%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 27% per annum as estimated by the eleven analysts watching the company. That's not great when the rest of the market is expected to grow by 12% each year.

With this information, we are not surprised that OCI 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 Bottom Line On OCI'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.

We've established that OCI maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware OCI is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of OCI's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether OCI is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis