Occidental Petroleum Corporation (NYSE:OXY) Might Not Be As Mispriced As It Looks

There wouldn't be many who think Occidental Petroleum Corporation's (NYSE:OXY) price-to-earnings (or "P/E") ratio of 17.8x is worth a mention when the median P/E in the United States is similar at about 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Our free stock report includes 4 warning signs investors should be aware of before investing in Occidental Petroleum. Read for free now.

Occidental Petroleum hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Occidental Petroleum

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

Is There Some Growth For Occidental Petroleum?

Occidental Petroleum's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 42%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 7.1% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 16% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader market.

With this information, we find it interesting that Occidental Petroleum is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Occidental Petroleum'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.

Our examination of Occidental Petroleum's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Occidental Petroleum is showing 4 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.