What Is Atkore International Group's (NYSE:ATKR) P/E Ratio After Its Share Price Rocketed?
Atkore International Group (NYSE:ATKR) shareholders are no doubt pleased to see that the share price has bounced 46% in the last month alone, although it is still down 47% over the last quarter. The bad news is that even after that recovery shareholders are still underwater by about 7.8% for the full year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
View our latest analysis for Atkore International Group
Does Atkore International Group Have A Relatively High Or Low P/E For Its Industry?
Atkore International Group's P/E of 7.25 indicates relatively low sentiment towards the stock. The image below shows that Atkore International Group has a lower P/E than the average (15.4) P/E for companies in the electrical industry.
This suggests that market participants think Atkore International Group will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Atkore International Group increased earnings per share by 9.7% last year. And it has improved its earnings per share by 42% per year over the last three years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.
Atkore International Group's Balance Sheet
Atkore International Group has net debt worth 65% of its market capitalization. This is a reasonably significant level of debt -- all else being equal you'd expect a much lower P/E than if it had net cash.
The Bottom Line On Atkore International Group's P/E Ratio
Atkore International Group's P/E is 7.2 which is below average (13.6) in the US market. It's good to see EPS growth in the last 12 months, but the debt on the balance sheet might be muting expectations. What is very clear is that the market has become less pessimistic about Atkore International Group over the last month, with the P/E ratio rising from 5.0 back then to 7.2 today. If you like to buy stocks that could be turnaround opportunities, then this one might be a candidate; but if you're more sensitive to price, then you may feel the opportunity has passed.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
But note: Atkore International Group may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
