When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Helmerich & Payne, Inc. (NYSE:HP) as a highly attractive investment with its 7.1x 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.
Helmerich & Payne hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for Helmerich & Payne
How Is Helmerich & Payne's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Helmerich & Payne's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered a frustrating 37% 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. 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 54% during the coming year according to the analysts following the company. Meanwhile, the broader market is forecast to expand by 13%, which paints a poor picture.
In light of this, it's understandable that Helmerich & Payne's 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 Final Word
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Helmerich & Payne 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Helmerich & Payne (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
You might be able to find a better investment than Helmerich & Payne. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.