Duke Energy Corporation's (NYSE:DUK) Shareholders Might Be Looking For Exit
Duke Energy Corporation's (NYSE:DUK) P/E ratio of 19.6x is comparable to the U.S. median of 18x, but investors may be overlooking potential risks. Despite a respectable 7.3% EPS growth last year and a total of 20% over three years, the company's future growth is estimated at only 6.6% per annum, below the market's 11%. This raises concerns about the sustainability of its current P/E ratio. Analysts suggest that unless earnings conditions improve, the current share prices may not be justified, indicating potential risks for shareholders.
There wouldn't be many who think Duke Energy Corporation's (NYSE:DUK) price-to-earnings (or "P/E") ratio of 19.6x is worth a mention when the median P/E in the United States is similar at about 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
Duke Energy's earnings growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.
View our latest analysis for Duke Energy
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Duke Energy.
Does Growth Match The P/E?
In order to justify its P/E ratio, Duke Energy would need to produce growth that's similar to the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.3% last year. The solid recent performance means it was also able to grow EPS by 20% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Turning to the outlook, the next three years should generate growth of 6.6% per annum as estimated by the twelve analysts watching the company. With the market predicted to deliver 11% growth per annum, the company is positioned for a weaker earnings result.
In light of this, it's curious that Duke Energy's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Duke 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.
You need to take note of risks, for example - Duke Energy has 2 warning signs (and 1 which is concerning) we think you should know about.
You might be able to find a better investment than Duke 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).
