Centrica's share price is down 9% in 2024, and here's where I think it will go next.

A giant of power Centrica (LSE: CNA) has had a very disappointing year for the market. Since January, Centrica's share price has fallen 9.1%, leaving many investors scratching their heads. As renewables and sustainability grow in importance, is this the time to jump in and reap the benefits, or are we looking at an old price trap? Let's dive in.

It's a mixed bag

Shares are trading well off their 52-week high of 173.70p. With a price-to-earnings (P/E) ratio of just 6.1 times, most value investors will be bright here. However, it is a complicated time in the energy sector. Many traditional players must reinvent themselves entirely, with disruption from new, more powerful firms lurking on the horizon.

This is where Centrica may have the edge. The company has been making great strides in the area of ​​renewable energy. It goes a long way with investments in solar, battery storage, and energy saving utilities.

This pivot to greener pastures may explain why, despite the share price reduction, 13 out of 15 analysts still raise the 'buy' flag. They seem to believe that the company is well positioned to ride the ubiquitous renewable energy wave.

What's next?

There's a lot to be excited about for the future here. Centrica is sitting on £3.2bn in adjusted earnings. That's a war chest that could fund some growth moves or acquisitions in the coming years.

Then there is the latter performance. Although the share price itself did not make investors happy, the earnings per share (EPS) from the latest report not only beat estimates, it beat them by 8%. And let's not forget the £200m share buyback program and the dividend yield of 3.11%.

However, I have many concerns as well. Annual profits are expected to decline by around 12.3% over the next three years. This is not good enough to attract investors as many other sectors are seeing huge growth and continuous demand.

Profit margins also suffered, falling from 14.1% last year to 5.4%. And let's not forget the 10.2% share price drop after the latest results.

The company's dividend record has been very volatile over the past few years. While the 20% payout ratio suggests there's plenty of room for maneuver, it's a long way down from the 15.8% dividend peak seen in 2019.

More of the same

I think Centrica's share price has another mixed year ahead. On the other hand, we have a rich company at a cheap price, and a happy group of analysts. On the other hand, we're looking at declining earnings, squeezed margins, and a consistent dividend history.

So can stocks quickly bounce back higher? Definitely. The low P/E and analyst optimism suggest there is plenty of room for the share price to rise. But remember, the energy sector is unpredictable, and regulatory changes can throw a spanner in the works at any time.

For me, I want to invest in companies where I can clearly see the growth path, and as it happens here, I think there is a lot of uncertainty ahead. I'll keep it on my watch list for now.