Investors Don't See Light At End Of Helmerich & Payne, Inc.'s (NYSE:HP) Tunnel

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 an attractive investment with its 9.6x 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 limited.

Helmerich & Payne could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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

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

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

In order to justify its P/E ratio, Helmerich & Payne would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 18%. 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.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings growth is heading into negative territory, declining 18% over the next year. That's not great when the rest of the market is expected to grow by 15%.

With this information, we are not surprised that Helmerich & Payne 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 Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Helmerich & Payne'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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Helmerich & Payne (of which 1 is a bit unpleasant!) you should know about.

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.