Lacklustre Performance Is Driving HF Sinclair Corporation's (NYSE:DINO) Low P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider HF Sinclair Corporation (NYSE:DINO) as a highly attractive investment with its 5.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for HF Sinclair 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.

View our latest analysis for HF Sinclair

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

Is There Any Growth For HF Sinclair?

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

If we review the last year of earnings growth, the company posted a terrific increase of 306%. Pleasingly, EPS has also lifted 125% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 16% each year as estimated by the eleven analysts watching the company. Meanwhile, the broader market is forecast to expand by 9.0% per year, which paints a poor picture.

With this information, we are not surprised that HF Sinclair 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that HF Sinclair maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for HF Sinclair (1 doesn't sit too well with us) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.