We've been asking ourselves recently if the market has placed a fair valuation on Chevron. Let's dive into some of the fundamental values of this large-cap Energy company to determine if there might be an opportunity here for value-minded investors.
Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States 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, Chevron has a trailing 12 month P/E ratio of 9.4 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 Chevron's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.56. 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.