Investors Still Aren't Entirely Convinced By PrimeEnergy Resources Corporation's (NASDAQ:PNRG) Earnings Despite 26% Price Jump

PrimeEnergy Resources Corporation (NASDAQ:PNRG) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 54%.

In spite of the firm bounce in price, PrimeEnergy Resources may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.9x, since almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 35x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

PrimeEnergy Resources certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for PrimeEnergy Resources

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on PrimeEnergy Resources will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like PrimeEnergy Resources' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The latest three year period has also seen an excellent 20,606% 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.

Comparing that to the market, which is only predicted to deliver 14% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that PrimeEnergy Resources is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Shares in PrimeEnergy Resources are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

Our examination of PrimeEnergy Resources revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

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

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.