Valero Energy shares fell by -2.2% during the day's evening session, and are now trading at a price of $133.72. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Valero Energy Corporation manufactures, markets, and sells transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, Latin America, and internationally. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Valero Energy has a trailing 12 month P/E ratio of 4.6 and a P/B ratio of 2.1.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divide Valero Energy's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.34. Since it's negative, the company actually has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
