Determining Aker BP ASA’s (OB:AKRBP) P/E is difficult at the moment

There wouldn’t be many who think Aker BP ASA (OB:AKRBP)’s price-to-earnings (or “P/E”) ratio of 9.4x is worth mentioning, while Norway’s median P/E is similar at around 11x. While this may not come as a surprise, if the P/E ratio is not justified, investors may miss a potential opportunity or ignore impending disappointment.

With earnings growth that has outperformed most peers recently, Aker BP is doing relatively well. Perhaps many expect the strong financial performance to weaken, which is keeping the P/E ratio from rising. If you like this company, you can hope that this isn’t the case and you could potentially buy some shares when they’re not very favorable.

View our latest analysis for Aker BP

If you want to see what analysts are predicting for the future, check out our article free report on Aker BP.

What do growth rates tell us about the P/E ratio?

Aker BP’s P/E ratio would be typical of a company that is expected to only grow moderately and, importantly, perform in line with the market.

In retrospect, it can be said that last year brought an exceptional increase in the company’s profits by 19%. Strong recent performance means it has also managed to grow its EPS by a total of 89% over the last three years. Therefore, it is safe to say that the company’s recent earnings growth has been excellent.

Looking ahead, according to analysts following the company, EPS will continue to decline, declining by 1.0% annually over the next three years. Meanwhile, the broader market is forecast to grow 28% annually, which doesn’t paint a good picture.

Based on this information, we conclude that Aker BP is trading at a P/E ratio quite similar to the market. Most investors seem to be hopeful that the company’s business prospects will turn around, but a cohort of analysts aren’t so sure that will happen. Only the bravest would assume that these prices will be sustainable, as falling earnings will likely ultimately weigh on the share price.

What can we learn from Aker BP’s P/E?

While the price-to-earnings ratio shouldn’t be a factor in whether you buy a stock or not, it is a pretty useful barometer of earnings expectations.

Our analysis of Aker BP analyst forecasts shows that the prospects for declining earnings are not impacting the P/E as much as we would expect. We’re not comfortable with the P/E ratio at the moment, as future earnings projections are unlikely to sustain the more positive sentiment for long. Until these conditions improve, it will be difficult to accept these prices as reasonable.

It’s also worth noting that we found 2 warning signs for Aker BP (1 makes us feel a little uncomfortable!) which should be taken into account.

Of course, you can find a fantastic investment by looking at some good candidates. So take a look at this free a list of companies with strong development, listed at a low P/E ratio.

Have an opinion on this article? Worried about content? contact with us directly. Alternatively, email the editorial team (at) simplywallst.com.

This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative content. Simply Wall St has no position in any of the stocks mentioned.

Have an opinion on this article? Worried about content? Contact us directly. You can also send an email to [email protected]