Yahoo Finance What Is Atkore International Group's (NYSE:ATKR) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Atkore International Group (NYSE:ATKR) share price has dived 64% in the last thirty days. The recent drop has obliterated the annual return, with the share price now down 26% over that longer period.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that long term investors have an opportunity when expectations of a company are too low. 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?
We can tell from its P/E ratio of 4.97 that sentiment around Atkore International Group isn't particularly high. If you look at the image below, you can see Atkore International Group has a lower P/E than the average (14.3) in the electrical industry classification.
Its relatively low P/E ratio indicates that Atkore International Group shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Atkore International Group, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. That means unless the share price increases, the P/E will reduce in a few years. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Atkore International Group's earnings per share grew by 9.7% in the last twelve months. And its annual EPS growth rate over 3 years is 42%.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
So What Does Atkore International Group's Balance Sheet Tell Us?
Atkore International Group's net debt is 94% of its market cap. 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 5.0 which is below average (12.2) in the US market. While the recent EPS growth is a positive, the significant amount of debt on the balance sheet may be contributing to pessimistic market expectations. What can be absolutely certain is that the market has become more pessimistic about Atkore International Group over the last month, with the P/E ratio falling from 13.9 back then to 5.0 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
When the market is wrong about a stock, it gives savvy investors an opportunity. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
Of course you might be able to find a better stock than Atkore International Group. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
