Oceaneering International, Inc. (NYSE:OII) Might Not Be As Mispriced As It Looks

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Oceaneering International, Inc. (NYSE:OII) as an attractive investment with its 15.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Oceaneering International as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Oceaneering International

Want the full picture on analyst estimates for the company? Then our free report on Oceaneering International will help you uncover what's on the horizon.

How Is Oceaneering International's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Oceaneering International's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 51% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

In light of this, it's peculiar that Oceaneering International's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Oceaneering International's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Oceaneering International currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Oceaneering International with six simple checks on some of these key factors.

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.