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AMCON Distributing Company's (NYSEMKT:DIT) Shares Lagging The Market But So Is The Business

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  • DIT

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider AMCON Distributing Company (NYSEMKT:DIT) as an attractive investment with its 16.9x 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 limited.

For instance, AMCON Distributing's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for AMCON Distributing

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Although there are no analyst estimates available for AMCON Distributing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is AMCON Distributing's Growth Trending?

AMCON Distributing's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. The last three years don't look nice either as the company has shrunk EPS by 16% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 3.7% shows it's an unpleasant look.

In light of this, it's understandable that AMCON Distributing's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that AMCON Distributing maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Plus, you should also learn about these 6 warning signs we've spotted with AMCON Distributing (including 2 which are concerning).

If you're unsure about the strength of AMCON Distributing's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.