Federal Agricultural Mortgage Corporation (NYSE:AGM) Doing What It Can To Lift Shares

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Federal Agricultural Mortgage Corporation (NYSE:AGM) as an attractive investment with its 12.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Federal Agricultural Mortgage has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Keen to find out how analysts think Federal Agricultural Mortgage's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Federal Agricultural Mortgage's Growth Trending?

In order to justify its P/E ratio, Federal Agricultural Mortgage would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow EPS by 88% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 15% over the next year. With the market only predicted to deliver 13%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Federal Agricultural Mortgage is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Federal Agricultural Mortgage's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Federal Agricultural Mortgage's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Federal Agricultural Mortgage, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Federal Agricultural Mortgage, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.