Insufficient Growth At Diamondback Energy, Inc. (NASDAQ:FANG) Hampers Share Price

Diamondback Energy, Inc. -0.68% Pre

Diamondback Energy, Inc.

FANG

203.95

203.95

-0.68%

0.00% Pre

Diamondback Energy, Inc.'s (NASDAQ:FANG) price-to-earnings (or "P/E") ratio of 8.8x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 33x are quite common. 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, Diamondback Energy has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. 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 Diamondback Energy

pe-multiple-vs-industry
NasdaqGS:FANG Price to Earnings Ratio vs Industry December 29th 2023
Keen to find out how analysts think Diamondback Energy's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Diamondback Energy?

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

Retrospectively, the last year delivered a frustrating 28% 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. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 2.1% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is noticeably more attractive.

In light of this, it's understandable that Diamondback Energy's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Diamondback Energy's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Diamondback Energy's analyst forecasts revealed that its inferior earnings outlook 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.

It is also worth noting that we have found 1 warning sign for Diamondback Energy that you need to take into consideration.

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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