What You Can Learn From Genie Energy Ltd.'s (NYSE:GNE) P/E After Its 27% Share Price Crash

The Genie Energy Ltd. (NYSE:GNE) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 20%.

In spite of the heavy fall in price, Genie Energy's price-to-earnings (or "P/E") ratio of 30.4x might still make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E's below 11x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Genie Energy certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Genie Energy

Keen to find out how analysts think Genie Energy's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Genie Energy's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 74%. Still, incredibly EPS has fallen 53% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 22% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% per annum, which is noticeably less attractive.

With this information, we can see why Genie Energy is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Genie Energy's P/E?

Genie Energy's shares may have retreated, but its P/E is still flying high. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Genie Energy maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Genie Energy that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.