Market Participants Recognise American Electric Power Company, Inc.'s (NASDAQ:AEP) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 18x in the United States, you could be forgiven for feeling indifferent about American Electric Power Company, Inc.'s (NASDAQ:AEP) P/E ratio of 18.6x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for American Electric Power Company as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for American Electric Power Company

If you'd like to see what analysts are forecasting going forward, you should check out our free report on American Electric Power Company.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, American Electric Power Company would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.6% per annum over the next three years. With the market predicted to deliver 11% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that American Electric Power Company'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.

What We Can Learn From American Electric Power Company's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that American Electric Power Company maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

It is also worth noting that we have found 2 warning signs for American Electric Power Company (1 doesn't sit too well with us!) 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.