WPX Energy, Inc. (NYSE:WPX): Is Growth Priced In?

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WPX Energy, Inc. (NYSE:WPX) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $12.95 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for WPX Energy

Can we expect WPX to keep growing?

WPX Energy’s growth potential is very attractive. Expectations from 17 analysts are extremely bullish with earnings per share estimated to rise from today’s level of $0.573 to $1.119 over the next three years. This results in an annual growth rate of 23%, on average, which indicates an exceedlingly positive future in the near term.

Is WPX available at a good price after accounting for its growth?

WPX is trading at price-to-earnings (PE) ratio of 22.6x, which suggests that WPX Energy is overvalued based on current earnings compared to the Oil and Gas industry average of 12.32x , and overvalued compared to the US market average ratio of 17.46x .

NYSE:WPX Price Estimation Relative to Market, February 22nd 2019
NYSE:WPX Price Estimation Relative to Market, February 22nd 2019

We already know that WPX appears to be overvalued when compared to its industry average. However, since WPX Energy is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 22.6x and expected year-on-year earnings growth of 23% give WPX Energy a low PEG ratio of 0.99x. This means that, when we account for WPX Energy’s growth, the stock can be viewed as fairly valued , based on the fundamentals.

What this means for you:

WPX’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are WPX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has WPX been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of WPX’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.