Ameresco, Inc. (NYSE:AMRC) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

To the annoyance of some shareholders, Ameresco, Inc. (NYSE:AMRC) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 4.8% over that longer period.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Ameresco's P/E ratio of 20.2x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Ameresco certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Ameresco

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ameresco.

Is There Some Growth For Ameresco?

In order to justify its P/E ratio, Ameresco would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Still, lamentably EPS has fallen 23% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 46% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 11% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Ameresco's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Ameresco's P/E?

With its share price falling into a hole, the P/E for Ameresco looks quite average now. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Ameresco currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 1 warning sign for Ameresco that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.