Stock Analysis

Risks To Shareholder Returns Are Elevated At These Prices For AptarGroup, Inc. (NYSE:ATR)

NYSE:ATR
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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider AptarGroup, Inc. (NYSE:ATR) as a stock to avoid entirely with its 32.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, AptarGroup has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for AptarGroup

pe-multiple-vs-industry
NYSE:ATR Price to Earnings Ratio vs Industry February 21st 2024
Keen to find out how analysts think AptarGroup's future stacks up against the industry? In that case, our free report is a great place to start.

How Is AptarGroup's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as AptarGroup's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 19%. As a result, it also grew EPS by 30% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 10% per annum over the next three years. 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 curious that AptarGroup's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On AptarGroup'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.

We've established that AptarGroup currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

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.

Valuation is complex, but we're helping make it simple.

Find out whether AptarGroup is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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:ATR

AptarGroup

AptarGroup, Inc. designs and manufactures a range of drug delivery, consumer product dispensing, and active material science solutions and services for the pharmaceutical, beauty, personal care, home care, and food and beverage markets.

Flawless balance sheet with solid track record and pays a dividend.