The Centrica (LSE: CNA) share price has lost 21% in 12 months. It is still up 67% over the past five years, but core valuation measures could make it look cheap.

The price-to-earnings (P/E) ratio is probably the most commonly used metric. And I’ll try to get a handle on it.

Earnings uncertainty

We need to decide if we’re going to look at the trailing P/E. That has the advantage of being calculated from actual earnings, but it’s in the past.

The forward P/E is based on forecasts and helps guide us to where the valuation might be going. But forecasts are often wrong.

So, I’m just going to take first-half earnings per share (EPS), double it as my full-year estimate, and see where that leads.

It’s compounded by Centrica reporting statutory H1 EPS of 25.1p, down from 73p in 2023. But at the same time it put its adjusted EPS at only 12.8p, from an adjusted 25.8p in 2023.

There’s a wide discrepancy there between what accounting standards mandate and where the company thinks its fair earnings measure should be. And that’s a caution for us to always be wary of a single set of results, or even several sets over a relatively short time.

Tricky valuation

Anyway, using first-half adjusted EPS as a base, I get an estimated forward P/E for the full year of 4.8.

In reality, it will probably come in higher than that, with second-half earnings likely to fall. Centrica said it expects “profitability to be heavily weighted to the first half of 2024“. The company also expects net cash to “decline in the second half“.

Forecasts put the full-year P/E at 6.5. That’s still very low, in what looks like a dreadful year. And analysts expect more bad news, with earnings falling for the next few years to lift the 2026 P/E to 9.6.

That’s on today’s share price though, so where do the analysts think it will go?

Target

The City currently has an average 168p share price target on Centrica, with a fairly strong buy consensus. If that comes off, it could mean a 38% gain. And we’d need a 72% climb to reach the high end of the target range, at 210p.

There’s a bottom end to the range too, at 130p. But even that’s 6.6% ahead of the price at the time of writing.

This is all very uncertain. And brokers’ price targets can often be nothing more than hot air. But if I owned Centrica shares, at least I’d be pleased that nobody was calling for them to fall.

Oh, you know who does think Centrica shares are good value? Centrica itself, currently engaged in a share buyback.

Time to buy?

To sum up, forecasts alone are nowhere near enough for me to make a buy decision. And there are other valuation measures that could be way more important than the P/E right now.

So I’d use these few snippets as just part of my research. And I’d need to dig a lot deeper, and seriously think about that falling earnings risk, before deciding if I’d buy.