New Jersey Resources Corporation's (NYSE:NJR) Prospects Need A Boost To Lift Shares

New Jersey Resources Corporation's (NYSE:NJR) price-to-earnings (or "P/E") ratio of 14.8x 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 18x and even P/E's above 32x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about New Jersey Resources. View them for free.

With earnings growth that's superior to most other companies of late, New Jersey Resources has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 New Jersey Resources

Want the full picture on analyst estimates for the company? Then our free report on New Jersey Resources will help you uncover what's on the horizon.

Is There Any Growth For New Jersey Resources?

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

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. The latest three year period has also seen an excellent 115% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 1.6% per year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 10% each year growth forecast for the broader market.

In light of this, it's understandable that New Jersey Resources' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of New Jersey Resources' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Having said that, be aware New Jersey Resources is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.