AdTheorent Holding Company, Inc.'s (NASDAQ:ADTH) Shares Lagging The Market But So Is The Business

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider AdTheorent Holding Company, Inc. (NASDAQ:ADTH) as a highly attractive investment with its 3.1x 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 so limited.

With earnings growth that's superior to most other companies of late, AdTheorent Holding Company has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for AdTheorent Holding Company

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

How Is AdTheorent Holding Company's Growth Trending?

In order to justify its P/E ratio, AdTheorent Holding Company would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 160%. The strong recent performance means it was also able to grow EPS by 275% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 51% per year during the coming three years according to the six analysts following the company. With the market predicted to deliver 9.0% growth each year, that's a disappointing outcome.

With this information, we are not surprised that AdTheorent Holding Company is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On AdTheorent Holding Company'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.

As we suspected, our examination of AdTheorent Holding Company's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for AdTheorent Holding Company you should know about.

If you're unsure about the strength of AdTheorent Holding Company's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.