Exxon Mobil Corporation’s (NYSE:XOM) Share Price Matching Investor Opinion - Simply Wall St

When close to half the companies in the United States have price-to-earnings ratios (or “P/E’s”) below 17x, you may consider Exxon Mobil Corporation (NYSE:XOM) as a stock to potentially avoid with its 21x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it’s justified.

Recent times haven’t been advantageous for Exxon Mobil as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.

See our latest analysis for Exxon Mobil

NYSE:XOM Price Based on Past Earnings September 28th 2020

If you’d like to see what analysts are forecasting going forward, you should check out our free report on Exxon Mobil.

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

There’s an inherent assumption that a company should outperform the market for P/E ratios like Exxon Mobil’s to be considered reasonable.

Taking a look back first, the company’s earnings per share growth last year wasn’t something to get excited about as it posted a disappointing decline of 59%. This means it has also seen a slide in earnings over the longer-term as EPS is down 40% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% each year, which is noticeably less attractive.

With this information, we can see why Exxon Mobil is trading at such a high P/E compared to the market. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Exxon Mobil’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 Exxon Mobil’s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for Exxon Mobil (1 is a bit concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Exxon Mobil, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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2020-09-29 17:43:47Z
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