Investors Aren't Entirely Convinced By Civitas Resources, Inc.'s (NYSE:CIVI) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Civitas Resources, Inc. (NYSE:CIVI) as a highly attractive investment with its 7.2x 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.

Civitas Resources has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Civitas Resources

Want the full picture on analyst estimates for the company? Then our free report on Civitas Resources will help you uncover what's on the horizon.

How Is Civitas Resources' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. Even so, admirably EPS has lifted 414% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 15% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

In light of this, it's peculiar that Civitas Resources' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Civitas Resources' P/E

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.

Our examination of Civitas Resources' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Civitas Resources that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.