Investors Don't See Light At End Of Alto Ingredients, Inc.'s (NASDAQ:ALTO) Tunnel And Push Stock Down 27%
Alto Ingredients, Inc. (NASDAQ:ALTO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 14% in that time.
Following the heavy fall in price, Alto Ingredients may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.7x, since almost half of all companies in the United States have P/E ratios greater than 16x and even P/E's higher than 32x 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 limited.
Recent times have been quite advantageous for Alto Ingredients as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.
See our latest analysis for Alto Ingredients
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 Alto Ingredients' earnings, revenue and cash flow.
How Is Alto Ingredients' Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Alto Ingredients' to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 142% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Comparing that to the market, which is predicted to deliver 10.0% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it's understandable that Alto Ingredients' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Alto Ingredients' P/E
The softening of Alto Ingredients' shares means its P/E is now sitting at a pretty low level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Alto Ingredients maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example - Alto Ingredients has 2 warning signs we think you should be aware of.
If you're unsure about the strength of Alto Ingredients' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
