The Market Lifts A-Mark Precious Metals, Inc. (NASDAQ:AMRK) Shares 35% But It Can Do More

A-Mark Precious Metals, Inc. (NASDAQ:AMRK) shareholders have had their patience rewarded with a 35% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 7.3% isn't as attractive.

In spite of the firm bounce in price, A-Mark Precious Metals' price-to-earnings (or "P/E") ratio of 7.9x might still make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, A-Mark Precious Metals has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for A-Mark Precious Metals

If you'd like to see what analysts are forecasting going forward, you should check out our free report on A-Mark Precious Metals.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like A-Mark Precious Metals' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 28%. Regardless, EPS has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 13% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% per year, which is noticeably less attractive.

In light of this, it's peculiar that A-Mark Precious Metals' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Shares in A-Mark Precious Metals are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of A-Mark Precious Metals' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 4 warning signs for A-Mark Precious Metals (1 shouldn't be ignored!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.