Investors Give Montauk Renewables, Inc. (NASDAQ:MNTK) Shares A 25% Hiding

Montauk Renewables, Inc. (NASDAQ:MNTK) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

Although its price has dipped substantially, there still wouldn't be many who think Montauk Renewables' price-to-earnings (or "P/E") ratio of 19.2x is worth a mention when the median P/E in the United States is similar at about 18x. 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 Montauk Renewables as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Montauk Renewables

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

Is There Some Growth For Montauk Renewables?

The only time you'd be comfortable seeing a P/E like Montauk Renewables' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 42%. Still, EPS has barely risen at all from three years ago in total, 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.

Looking ahead now, EPS is anticipated to climb by 15% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we find it interesting that Montauk Renewables is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Following Montauk Renewables' share price tumble, its P/E is now hanging on to the median market P/E. 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.

We've established that Montauk Renewables currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Montauk Renewables that you should be aware of.

Of course, you might also be able to find a better stock than Montauk Renewables. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.