Improved Earnings Required Before PDC Energy, Inc. (NASDAQ:PDCE) Shares Find Their Feet

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider PDC Energy, Inc. (NASDAQ:PDCE) as a highly attractive investment with its 3.3x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for PDC Energy 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for PDC Energy

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

How Is PDC Energy's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 254% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 1.4% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 9.6% per year, which is noticeably more attractive.

With this information, we can see why PDC Energy is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that PDC Energy 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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for PDC Energy (1 is potentially serious!) that you should be aware of before investing here.

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

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

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.