Is Atmos Energy Corporation’s (NYSE:ATO) Growth Strong Enough To Justify Its August Share Price?

Atmos Energy Corporation (NYSE:ATO) is considered a high growth stock. However its last closing price of $108.56 left investors wondering whether this growth has already been factored into the share price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Atmos Energy

Has the ATO train slowed down?

According to the analysts covering the company, the following few years should bring about good growth prospects for Atmos Energy. The consensus forecast from 8 analysts is buoyant with earnings per share estimated to surge from current levels of $4.26 to $5.226 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which signals a market-beating outlook in the upcoming years.

Is ATO’s share price justifiable by its earnings growth?

As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Atmos Energy is trading at price-to-earnings (PE) ratio of 25.49x, which tells us the stock is overvalued based on current earnings compared to the Gas Utilities industry average of 24.93x , and overvalued compared to the US market average ratio of 17.42x .

NYSE:ATO Price Estimation Relative to Market, August 12th 2019
NYSE:ATO Price Estimation Relative to Market, August 12th 2019

We already know that ATO appears to be overvalued when compared to its industry average. However, since Atmos Energy is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 25.49x and expected year-on-year earnings growth of 11% give Atmos Energy a quite high PEG ratio of 2.38x. Based on this growth, Atmos Energy’s stock can be considered overvalued , based on its fundamentals.

What this means for you:

ATO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are ATO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has ATO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ATO’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.