ONE Gas, Inc.'s (NYSE:OGS) Share Price Could Signal Some Risk

With a median price-to-earnings (or "P/E") ratio of close to 18x in the United States, you could be forgiven for feeling indifferent about ONE Gas, Inc.'s (NYSE:OGS) P/E ratio of 18.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

The recently shrinking earnings for ONE Gas have been in line with the market. The P/E is probably moderate because investors think the company's earnings trend will continue to follow the rest of the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. At the very least, you'd be hoping that earnings don't accelerate downwards if your plan is to pick up some stock while it's not in favour.

See our latest analysis for ONE Gas

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

Is There Some Growth For ONE Gas?

There's an inherent assumption that a company should be matching the market for P/E ratios like ONE Gas' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.8%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 5.7% per annum during the coming three years according to the seven analysts following the company. With the market predicted to deliver 10% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it interesting that ONE Gas is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From ONE Gas' 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.

Our examination of ONE Gas' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for ONE Gas (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of ONE Gas' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.