Ampco-Pittsburgh Corporation's (NYSE:AP) Price Is Out Of Tune With Earnings
With a price-to-earnings (or "P/E") ratio of 36x Ampco-Pittsburgh Corporation (NYSE:AP) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Recent times have been quite advantageous for Ampco-Pittsburgh as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.
See our latest analysis for Ampco-Pittsburgh
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ampco-Pittsburgh's earnings, revenue and cash flow.
How Is Ampco-Pittsburgh's Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Ampco-Pittsburgh's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 278%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 90% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it's alarming that Ampco-Pittsburgh's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
The Bottom Line On Ampco-Pittsburgh's P/E
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Ampco-Pittsburgh currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
You need to take note of risks, for example - Ampco-Pittsburgh has 4 warning signs (and 2 which can't be ignored) we think you should know about.
If these risks are making you reconsider your opinion on Ampco-Pittsburgh, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
