Little Excitement Around Peabody Energy Corporation's (NYSE:BTU) Earnings As Shares Take 28% Pounding

To the annoyance of some shareholders, Peabody Energy Corporation (NYSE:BTU) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

After such a large drop in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Peabody Energy as a highly attractive investment with its 4.3x P/E ratio. 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.

Peabody Energy hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Peabody Energy

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

How Is Peabody Energy's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 46% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 6.9% each year over the next three years. That's not great when the rest of the market is expected to grow by 11% each year.

With this information, we are not surprised that Peabody Energy 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. 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 Peabody Energy's P/E

Peabody Energy's P/E looks about as weak as its stock price lately. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Peabody Energy's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Peabody Energy (of which 1 can't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Peabody Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.