Investors Continue Waiting On Sidelines For Eastman Chemical Company (NYSE:EMN)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Eastman Chemical Company (NYSE:EMN) as an attractive investment with its 12x 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.

Recent times have been advantageous for Eastman Chemical as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Eastman Chemical

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

Is There Any Growth For Eastman Chemical?

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

Retrospectively, the last year delivered an exceptional 53% gain to the company's bottom line. The latest three year period has also seen an excellent 103% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.4% per year over the next three years. That's shaping up to be similar to the 11% each year growth forecast for the broader market.

With this information, we find it odd that Eastman Chemical is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Eastman Chemical'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 Eastman Chemical's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Eastman Chemical is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Eastman Chemical. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.