Some shareholders really feel uneasy concerning the P / E ratio of Ampco-Pittsburgh Company (NYSE: AP)
Ampco-Pittsburgh Corporation (NYSE: AP) Price Earnings Ratio (or “P / E”) of 26.5x could look like a sale below 19x and a sale compared to the market in the United States, where roughly half of the companies have a P / E ratio even P / E ratios below 11x are quite common. However, it is not advisable to simply take the P / E ratio at face value as there may be an explanation for why it is so high.
For example, Ampco-Pittsburgh’s results have worsened over the past year, which is by no means ideal. It could be that many expect the company to outperform most other companies in the period ahead, which has prevented the P / E ratio from falling. If not, then existing shareholders could be quite nervous about the viability of the stock price.
Check out our latest analysis for Ampco-Pittsburgh
We don’t have analyst predictions, but you can see how recent trends set the company up for the future by using ours free Ampco-Pittsburgh earnings, sales and cash flow report.
Is there enough growth for Ampco-Pittsburgh?
A P / E ratio as high as Ampco-Pittsburgh’s is only really comfortable when the company’s growth is well on its way to outperform the market.
In retrospect, the company’s earnings per share growth last year was no cause for celebration as it posted a disappointing 38% decline. Unfortunately, this has brought it back to where it started three years ago, with overall EPS growth virtually non-existent during that time. Hence, it is fair to say that earnings growth for the company has been inconsistent lately.
When you weigh this recent mid-term earnings trend against the broader market’s one-year growth forecast of 17%, it turns out to be significantly less attractive on an annualized basis.
With that in mind, it’s alarming that Ampco-Pittsburgh’s P / E ratio is above the majority of other companies. It appears that most investors are ignoring the relatively limited growth rates of recent times and are hoping for a turnaround in the company’s business outlook. There is a good chance existing shareholders will prepare for future disappointment if the P / E ratio drops to levels closer to recent growth rates.
The story goes on
What can we learn from the Ampco-Pittsburgh P / E ratio?
In general, our preference is to limit our use of the price / earnings ratio to determining what the market thinks of a company’s overall health.
We found that Ampco-Pittsburgh is currently trading at a much higher than expected P / E ratio as its most recent three-year growth is lower than broad market forecast. Right now we are increasingly uncomfortable with the high P / E ratio as this earnings trend is unlikely to sustain such positive sentiment for long. Unless recent medium-term conditions improve noticeably, it is very difficult to accept these prices as reasonable.
You always have to be aware of risks, for example – Ampco-Pittsburgh has 1 warning sign We think you should be aware of this.
If you are unsure of the strength of Ampco-Pittsburgh’s businessWhy not explore our interactive stock listing with a solid business foundation for some other companies you may have overlooked.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
Do you have any feedback on this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.