Investors Give Ramaco Resources, Inc. (NASDAQ:METC) Shares A 28% Hiding

Ramaco Resources, Inc. (NASDAQ:METC) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 19% in the last year.

Since its price has dipped substantially, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Ramaco Resources as an attractive investment with its 9.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Ramaco Resources has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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 Ramaco Resources

Want the full picture on analyst estimates for the company? Then our free report on Ramaco Resources will help you uncover what's on the horizon.

How Is Ramaco Resources' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ramaco Resources' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 871% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 16% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.

With this information, we find it odd that Ramaco Resources is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Ramaco Resources' P/E?

Ramaco Resources' P/E has taken a tumble along with its share price. 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 Ramaco Resources currently trades on a much 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 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 is also worth noting that we have found 2 warning signs for Ramaco Resources that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.