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Is the Origin Energy share price cheap or will it keep falling?

The Origin Energy Ltd (ASX: ORG) share price jumped 1.4% higher yesterday in a good sign for investors. However, the Origin Energy share price remains down 31.2% for the year.

So, is the ASX energy share in the buy zone or will it fall further in 2020?

Why the Origin Energy share price has slumped this year

It’s been tough going for ASX energy shares in 2020. That means Origin Energy is in good company when it comes to the ASX losers list.

One of the big factors has been a slump in demand for energy. That’s largely been driven by the coronavirus pandemic, which has shut down operations in many energy-intensive industries like travel and manufacturing.

Origin has a number of different operating segments. The company is involved in energy sales, renewable energy, gas exploration and production as well as power generation. 

The recent slump in demand has naturally impacted on realised prices and earnings for Origin. That means all eyes will be on Origin’s full-year results announcement on Thursday 20 August.

What can we expect from Origin’s full-year result?

I don’t think anyone would be surprised by a drop in Origin’s full-year earnings and profit numbers. Despite the Origin Energy share price trading with a dividend yield of 5.2%, I’d expect that to fall lower.

The real question is just how badly earnings have been impacted and what the outlook for FY21 is like.

Investors are naturally interested in what the future looks like. That means a clear pathway for dividends and more certainty around management’s strategy for the short- to medium-term.

There has been an uptick in renewable energy usage during 2020. As one of the largest energy producers in Australia, Origin is well-placed to capitalise on any changing consumer trends.

Is Origin in the buy zone?

The Origin share price currently trades at a price-to-earnings (P/E) ratio of 10.1. That’s slightly cheaper than rival AGL Energy Limited (ASX: AGL) and could make it a good relative buy.

The 31.2% share price drop this year is a concern, but could mean it has been oversold. If we see a clear growth strategy and signs of strengthening earnings, I think the Origin Energy share price could be in the buy zone this month.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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