California Resources Corporation (NYSE:CRC) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, California Resources may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.4x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, California Resources' earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is California Resources' Growth Trending?

California Resources' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. This means it has also seen a slide in earnings over the longer-term as EPS is down 69% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings growth is heading into negative territory, declining 9.6% each year over the next three years. That's not great when the rest of the market is expected to grow by 12% each year.

In light of this, it's understandable that California Resources' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

The latest share price surge wasn't enough to lift California Resources' P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of California Resources' analyst forecasts revealed that its outlook for shrinking earnings 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You might be able to find a better investment than California Resources.

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.