Alpha Metallurgical Resources, Inc.'s (NYSE:AMR) Shares Lagging The Market But So Is The Business
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Alpha Metallurgical Resources, Inc. (NYSE:AMR) as a highly attractive investment with its 5.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Alpha Metallurgical Resources has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
See our latest analysis for Alpha Metallurgical Resources
Keen to find out how analysts think Alpha Metallurgical Resources' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Alpha Metallurgical Resources' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Alpha Metallurgical Resources' is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 37%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 43% over the next year. That's not great when the rest of the market is expected to grow by 10%.
With this information, we are not surprised that Alpha Metallurgical Resources is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Bottom Line On Alpha Metallurgical Resources' P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Alpha Metallurgical Resources' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for Alpha Metallurgical Resources (1 is a bit concerning!) that we have uncovered.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
