Earnings Working Against Civitas Resources, Inc.'s (NYSE:CIVI) Share Price Following 26% Dive

Civitas Resources, Inc. (NYSE:CIVI) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

Following the heavy fall in price, Civitas Resources may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.3x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x 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.

Civitas Resources could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Civitas Resources

Keen to find out how analysts think Civitas Resources' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Civitas Resources?

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

Retrospectively, the last year delivered a frustrating 6.7% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 87% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 7.9% per year during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% each year, which is noticeably more attractive.

With this information, we can see why Civitas Resources 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

Civitas Resources' P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of Civitas Resources' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Civitas Resources (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of Civitas Resources' 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.