How high is W&T Offshore's (NYSE: WTI) P / E ratio after the stock price has skyrocketed?

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<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "W & amp; T offshore (NYSE: WTI) The stocks have recently continued their momentum, gaining 31% in the past month alone. The growth of 18% for the full year is also quite reasonable. "Data reactid =" 27 ">W&T offshore (NYSE: WTI) stocks have recently continued their momentum, growing 31% in the past month alone. The growth of 18% for the full year is also quite reasonable.

If everything else is the same, a sharp rise in the share price should make a share less attractive to potential investors. In the long run, stock prices tend to follow earnings per share, but in the short run, prices move in response to short-term factors (which are not always obvious). Therefore, some would prefer to hold back the purchase if there is a lot of optimism about a stock. One way to measure a stock's market expectations is to look at its price-earnings ratio (PE ratio). A high P / E implies that investors have high expectations of what a company can achieve compared to a company with a low P / E.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for W&T Offshore "data-reactid =" 29 "> Check out our latest analysis for W&T Offshore

What is the P&L of W&T Offshore compared to its competitors?

W&T Offshore's P / E ratio of 4.13 shows a relatively low sentiment towards the share. The following picture shows that the average P / E ratio (11.2) for companies in the oil and gas industry is higher than the P / E ratio of W&T Offshore.

NYSE: WTI Price Estimation vs. Market, January 5, 2020

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This suggests that market participants W & amp; Think T Offshore Since the market appears to be unaffected by W&T Offshore, it is quite possible that a positive surprise will come in. If you find the stock interesting, further investigation is recommended, for example, I observe it frequently Director of Buying and SellingEmagazine.credit-suisse.com/app/art … = 157 & lang = DE This suggests that market participants believe that W&T Offshore will underperform other companies in its industry. Interesting, Further research is recommended, for example I often monitor Director of Buying and Selling,

How growth rates affect P / E

The P / E primarily reflects the market expectations regarding profit growth rates. This is because companies that quickly increase earnings per share quickly increase the E in the equation. That said, even if the current P / E ratio is high, it will decrease over time if the stock price remains unchanged. Then a lower P / E ratio should attract more buyers and drive up the share price.

W&T Offshore's earnings grew like a rocket, dropping 52% last year. The sweetener is that the annual growth rate of 61% over five years is also impressive. With such a growth rate, we would generally expect a high P / E ratio.

Don't forget: The P / E does not take into account debts or bank deposits

A disadvantage of using a P / E is that market capitalization is taken into account, but not the balance sheet. In other words, it does not take into account any debts or cash that the company may have on its balance sheet. Exactly the same company would hypothetically deserve a higher P / E ratio if it had a strong balance sheet than if it had a weak one with a lot of debt because a cashed company can spend on growth.

Spending on growth could be good or bad a few years later, but the point is that the P / E doesn't take the option (or lack thereof) into account.

What does the balance sheet of W&T Offshore tell us?

Net debt is 83% of W & T Offshore's market capitalization. This is reasonably significant debt – otherwise the P / E ratio is much lower than that of net liquidity.

The bottom line of the KGV from W & T Offshore

W&T Offshore trades at a P / E ratio of 4.1, which is below the US market average of 18.8. While EPS growth has been strong in the past year, significant debt levels are reducing the number of options available to management. If it continues to grow, the current low P / E ratio may prove to be unjustified. What we know for sure is that investors are less dissatisfied with W&T Offshore's prospects as they lowered their P / E ratio from 3.2 to 4.1 last month. For those who like to invest in turnarounds, this could mean that it is time to put the stock on a watch list or do some research. But others might consider the opportunity to be past.

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Investors should look for stocks that the market is buying If the reality for a company is not as bad as the P / E says, the stock price should go up when the market realizes it free visual report on analyst forecasts could be the key to making an excellent investment decision. "data-reactid =" 59 "> Investors should look for stocks where the market is wrong. If the reality is not as bad for a company as the P / E says then the stock price should go up when the market recognizes it free A visual report on analyst forecasts could be the key to making an excellent investment decision.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Of course You may find a better stock than W&T Offshore, Maybe you want to see that free Collection of other companies that have grown profits."data-reactid =" 60 "> Of course You may find a better stock than W&T Offshore, Maybe you want to see that free Collection of other companies that have grown profits significantly.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 61 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.