When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Northern Oil and Gas, Inc. (NYSE:NOG) as a highly attractive investment with its 4.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Northern Oil and Gas has been doing quite well of late. 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 Northern Oil and Gas

Keen to find out how analysts think Northern Oil and Gas' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Northern Oil and Gas?

The only time you'd be truly comfortable seeing a P/E as depressed as Northern Oil and Gas' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 8.9% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 14% each year during the coming three years according to the ten analysts following the company. With the market predicted to deliver 10% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Northern Oil and Gas is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Northern Oil and Gas maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

You need to take note of risks, for example - Northern Oil and Gas has 5 warning signs (and 2 which are potentially serious) we think you should know about.

You might be able to find a better investment than Northern Oil and Gas. 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).

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.