There Is A Reason BW Offshore Limited's (OB:BWO) Price Is Undemanding

Explore BW Offshore's Fair Values from the Community and select yours

With a price-to-earnings (or "P/E") ratio of 4.5x BW Offshore Limited (OB:BWO) may be sending very bullish signals at the moment, given that almost half of all companies in Norway have P/E ratios greater than 14x and even P/E's higher than 21x 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.

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Recent times have been advantageous for BW 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 BW Offshore

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BW Offshore.

How Is BW Offshore's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. Pleasingly, EPS has also lifted 998% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 11% during the coming year according to the three analysts following the company. With the market predicted to deliver 23% growth , that's a disappointing outcome.

In light of this, it's understandable that BW Offshore's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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.

We've established that BW Offshore 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 BW Offshore is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.