Lacklustre Performance Is Driving EOG Resources, Inc.'s (NYSE:EOG) Low P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider EOG Resources, Inc. (NYSE:EOG) as an attractive investment with its 8.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The recently shrinking earnings for EOG Resources have been in line with the market. It might be that many expect the company's earnings performance to degrade further, 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. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.

View our latest analysis for EOG Resources

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

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

EOG Resources' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 1.8%. 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. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 1.7% each year during the coming three years according to the analysts following the company. Meanwhile, the broader market is forecast to expand by 11% each year, which paints a poor picture.

In light of this, it's understandable that EOG Resources' P/E would sit below the majority of other companies. 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 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 EOG Resources maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

You need to take note of risks, for example - EOG Resources has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.

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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.