National Oilwell Varco Inc. (NYSE:NOV)

Between 2006 and 2016, the financial profile of the entity was characterized by a period of significant growth in earnings and share price, followed by a sharp contraction in 2016. The relationship between share price and earnings per share (EPS) reveals distinct phases of valuation expansion and contraction.

Earnings Per Share (EPS) Trajectory

A consistent upward trend in EPS is observed from 2006 to 2015, rising from 0.82 US$ to a peak of 6.10 US$. This indicates a decade of sustained growth in profitability. However, this trend reversed abruptly in 2016, with EPS falling to -2.05 US$, representing a complete erasure of the prior growth and a shift into negative territory.

Share Price Fluctuations

The share price exhibited high volatility over the analyzed period. After an initial rise from 29.92 US$ in 2006, prices peaked at 86.23 US$ in 2012. Following this peak, a gradual decline occurred, culminating in a steep drop to 29.30 US$ by February 2016, effectively returning the share price to 2006 levels.

Price-to-Earnings (P/E) Ratio Analysis

The P/E ratio displays a non-linear pattern, suggesting shifting market sentiment. An initial high valuation of 36.44 in 2006 compressed significantly to 5.13 by 2009, despite increasing EPS, which indicates a period of severe market undervaluation or risk aversion. A subsequent recovery saw the ratio climb back to 20.05 by 2011. From 2012 to 2015, the P/E ratio trended downward from 18.35 to 9.03, suggesting a declining multiple as the market adjusted its expectations. In 2016, the P/E ratio is not applicable due to negative earnings.

Valuation Divergence

A notable divergence is observed between 2009 and 2012, where the share price recovered more aggressively than the P/E ratio initially suggested, eventually peaking in 2012. The final period from 2014 to 2016 shows a synchronized decline in both the P/E multiple and the share price, preceding the eventual collapse into negative earnings.