One of the few stocks that I really love is RIG. I was checking it today to see if it’s at a “buy” price. The price was $69.71, which I feel is an attractive price, but not that attractive. However, when you look at RIG’s P/E (9.06), the current stock price is dirt cheap. I took a look at three public offshore drilling companies: Noble Corporation (NE), Diamond Offshore Drilling (DO), and Pride International (PDE). I examined their P/E as well as their highest price throughout their history.

NE has a P/E of 8.03, less than that of RIG’s, and as far as I remember, never experienced problems with its installations (explosions, etc…). The stock’s highest price was around $65 back in May of 2008, making its highest P/E (assuming EPS was the same back then as it is right now) around 15.

DO has a P/E of 9.06 (which, oddly enough, is exactly the same as RIG’s). DO also never experienced any problem with its installations. Its highest price was $143, recorded in December of 2007. This means that the highest P/E (also assuming EPS has never changed) around 19.5.

With a P/E as high as 35, PDE looks to be overvalued and spoiled by the investors. Although it never experienced any serious problems with any of its installations, PDE seems to be trading way above the average of the whole industry. PDE’s highest price was back in June of 2008 when the stock reached $47.79, which means that its highest P/E (again, assuming its EPS did not change) around 53.

Companies trading at a P/E lower than 10 always attract me, but, with the exception of PDE, a P/E of 8 – 9 seems to be the standard in this industry. That doesn’t mean that these companies are not undervalued. All these stocks were adversely affected by the oil spill back in April of 2010 and the ensuing regulations. But now even the offshore drilling ban is lifted, this means that these companies have the potential to make more wells, and consequently, make more money, but obviously, the market is slow in assessing the current situation that favors the business that these companies are conducting.

I think the whole offshore drilling industry is way undervalued, but I expect a reversal in the trend next year, where at least a P/E of 12 will be the norm. I would invest in all the companies mentioned above, with the exception of PDE, which I think is trading above its real value.