Insufficient Growth At Exelon Corporation (NASDAQ:EXC) Hampers Share Price

NASDAQ:EXC) price-to-earnings (or "P/E") ratio of 13.4x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E’s above 38x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.” data-reactid=”28″>Exelon Corporation’s (NASDAQ:EXC) price-to-earnings (or “P/E”) ratio of 13.4x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E’s above 38x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.

Recent times have been pleasing for Exelon as its earnings have risen in spite of the market’s earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s out of favour.

Check out our latest analysis for Exelon ” data-reactid=”30″> Check out our latest analysis for Exelon

free report on Exelon will help you uncover what’s on the horizon.” data-reactid=”47″>Want the full picture on analyst estimates for the company? Then our free report on Exelon will help you uncover what’s on the horizon.

How Is Exelon’s Growth Trending?

The only time you’d be truly comfortable seeing a P/E as low as Exelon’s is when the company’s growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The strong recent performance means it was also able to grow EPS by 42% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 4.8% per year as estimated by the eleven analysts watching the company. That’s shaping up to be materially lower than the 14% per annum growth forecast for the broader market.

In light of this, it’s understandable that Exelon’s P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Exelon’s P/E

It’s argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We’ve established that Exelon maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We’ve identified 2 warning signs with Exelon (at least 1 which is a bit concerning), and understanding these should be part of your investment process.” data-reactid=”56″>It’s always necessary to consider the ever-present spectre of investment risk. We’ve identified 2 warning signs with Exelon (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

our interactive list of high quality stocks to get an idea of what else is out there.” data-reactid=”57″>If these risks are making you reconsider your opinion on Exelon, explore our interactive list of high quality stocks to get an idea of what else is out there.

Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>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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