# What is the average price-to-earnings ratio in the oil & gas drilling sector?

The energy sector provides unique opportunities for individuals interested in value investing, especially with companies that operate under the oil and gas drilling category. In order to determine whether a company is appropriate to add as an alternative asset class within an investor’s portfolio, it is necessary to calculate certain ratios, such as the price-to-earnings ratio (P/E ratio).

## Calculating P/E Ratio

The P/E ratio of a company or specific industry gives insight into the value of that company or industry by comparing its current share price to its per-share earnings. The P/E ratio is calculated by dividing the market value of a company's shares by its earnings per share (EPS). It is typically done using share price information from the previous four quarters. The P/E ratio can also be used as a projection tool by using expected estimates for the upcoming four quarters. Whether for current or future calculations, a high P/E ratio typically means that shareholders can expect growth on

earnings that is higher than companies with lower P/E ratio metrics, but only when compared to companies within the same sector or industry.

## Oil and Gas Drilling P/E Ratios

As of January 2015, the average P/E ratio for the oil and gas drilling sector is 25.4. The industry average includes the metrics of large-, mid- and small-cap companies including Canadian Energy Services (CEU) with a P/E ratio of 20.98, Hugoton Royalty Trust (HGT ) with a P/E ratio of 7.54 and Pioneer Energy Services Corp (PES ) with a P/E ratio of 38.84.

Within any industry, the P/E ratio is considered average when it is between 20 and 25, and as such, the oil and gas drilling sector falls in line with adequate P/E metrics. For investors seeking opportunities in value investing, the energy sector can provide opportunities within oil and gas drilling companies, but investors should be aware of relevant metrics. including the P/E ratio, prior to investing.

Source: www.investopedia.com

Category: Forex