Little Excitement Around CF Industries Holdings, Inc.'s (NYSE:CF) Earnings

CF Industries Holdings, Inc.'s (NYSE:CF) price-to-earnings (or "P/E") ratio of 13.2x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E's above 36x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

CF Industries Holdings 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.

Check out our latest analysis for CF Industries Holdings

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

Is There Any Growth For CF Industries Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like CF Industries Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's bottom line. Even so, admirably EPS has lifted 381% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 4.0% per annum as estimated by the analysts watching the company. That's not great when the rest of the market is expected to grow by 11% per annum.

With this information, we are not surprised that CF Industries Holdings 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.

What We Can Learn From CF Industries Holdings' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that CF Industries Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CF Industries Holdings (of which 1 is a bit unpleasant!) you should know about.

You might be able to find a better investment than CF Industries Holdings. 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.