Earnings Working Against Gulfport Energy Corporation's (NYSE:GPOR) Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Gulfport Energy Corporation (NYSE:GPOR) as a highly attractive investment with its 3.2x 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.

Gulfport Energy has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.

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How Is Gulfport Energy's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Gulfport Energy's 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. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 27% per annum during the coming three years according to the three analysts following the company. With the market predicted to deliver 9.9% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Gulfport Energy is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. 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 Gulfport Energy's P/E

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.

As we suspected, our examination of Gulfport Energy's analyst forecasts revealed that its outlook for shrinking earnings 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.

Before you settle on your opinion, we've discovered 3 warning signs for Gulfport Energy (2 can't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Gulfport 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com