It's Down 35% But Vistra Corp. (NYSE:VST) Could Be Riskier Than It Looks

Vistra Corp. (NYSE:VST) shareholders won't be pleased to see that the share price has had a very rough month, dropping 35% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 87% in the last year.

In spite of the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Vistra as an attractive investment with its 14.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Vistra certainly has been doing a good job lately as it's been growing earnings more 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 Vistra

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

How Is Vistra's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 97% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 9.5% each year as estimated by the ten analysts watching the company. That's shaping up to be similar to the 11% each year growth forecast for the broader market.

In light of this, it's peculiar that Vistra's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Vistra's P/E

Vistra's P/E has taken a tumble along with its share price. 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.

We've established that Vistra currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Vistra you should know about.

If these risks are making you reconsider your opinion on Vistra, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.