Insufficient Growth At Range Resources Corporation (NYSE:RRC) Hampers Share Price

Range Resources Corporation -1.73%

Range Resources Corporation

RRC

33.47

-1.73%

With a price-to-earnings (or "P/E") ratio of 9.7x Range Resources Corporation (NYSE:RRC) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x 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.

With earnings that are retreating more than the market's of late, Range Resources has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Range Resources

pe-multiple-vs-industry
NYSE:RRC Price to Earnings Ratio vs Industry March 30th 2024
Keen to find out how analysts think Range Resources' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Range Resources?

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

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. 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 slump, contracting by 2.3% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 10% growth per year, that's a disappointing outcome.

With this information, we are not surprised that Range Resources is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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 Range Resources maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Range Resources (1 shouldn't be ignored) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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