We've been asking ourselves recently if the market has placed a fair valuation on Marathon Petroleum. 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.
Marathon Petroleum Corporation, together with its subsidiaries, operates as an integrated downstream energy company primarily in the United States. 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, Marathon Petroleum has a trailing 12 month P/E ratio of 3.5 and a P/B ratio of 1.82.
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 divideMarathon Petroleum's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.06, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
