There wouldn't be many who think ATI Inc.'s (NYSE:ATI) price-to-earnings (or "P/E") ratio of 19.3x is worth a mention when the median P/E in the United States is similar at about 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Recent times have been pleasing for ATI as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
View our latest analysis for ATI
Is There Some Growth For ATI?
The only time you'd be comfortable seeing a P/E like ATI's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.5% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 9.6% each year during the coming three years according to the six analysts following the company. With the market predicted to deliver 10% growth each year, the company is positioned for a comparable earnings result.
In light of this, it's understandable that ATI's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
The Final Word
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.
As we suspected, our examination of ATI's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with ATI, and understanding should be part of your investment process.
If these risks are making you reconsider your opinion on ATI, 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.
About NYSE:ATI
ATI
Produces and sells specialty materials and complex components worldwide.
Good value with adequate balance sheet.
