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When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 16x, you may consider Gulf Keystone Petroleum Limited (LON:GKP) as a highly attractive investment with its 6.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Gulf Keystone Petroleum could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Gulf Keystone Petroleum

How Does Gulf Keystone Petroleum's P/E Ratio Compare To Its Industry Peers?

An inspection of average P/E's throughout Gulf Keystone Petroleum's industry may help to explain its particularly low P/E ratio. The image below shows that the Oil and Gas industry as a whole also has a P/E ratio significantly lower than the market. So we'd say there is merit in the premise that the company's ratio being shaped by its industry at this time. Ordinarily, the majority of companies' P/E's would be compressed firmly by the general conditions within the Oil and Gas industry. Nevertheless, the company's P/E should be primarily influenced by its own financial performance.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gulf Keystone Petroleum.

Is There Any Growth For Gulf Keystone Petroleum?

Gulf Keystone Petroleum's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 45%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 53% per year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 8.1% each year growth forecast for the broader market.

In light of this, it's peculiar that Gulf Keystone Petroleum's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Gulf Keystone Petroleum's P/E

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 Gulf Keystone Petroleum's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Gulf Keystone Petroleum that you need to be mindful of.

Of course, you might also be able to find a better stock than Gulf Keystone Petroleum. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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