Dominion Energy, Inc.'s (NYSE:D) Business Is Trailing The Market But Its Shares Aren't

Dominion Resources, Inc. -0.85% Pre

Dominion Resources, Inc.





-0.04% Pre

With a median price-to-earnings (or "P/E") ratio of close to 17x in the United States, you could be forgiven for feeling indifferent about Dominion Energy, Inc.'s (NYSE:D) P/E ratio of 15.2x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been pleasing for Dominion Energy as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Dominion Energy

NYSE:D Price to Earnings Ratio vs Industry January 30th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dominion Energy.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Dominion Energy's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 148% gain to the company's bottom line. The latest three year period has also seen an excellent 75% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 6.2% per year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 12% per annum, which is noticeably more attractive.

With this information, we find it interesting that Dominion Energy is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

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.

Our examination of Dominion Energy's 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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Dominion Energy (1 doesn't sit too well with us!) that you need to take into consideration.

You might be able to find a better investment than Dominion Energy. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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