Stock Analysis

AngloGold Ashanti Limited's (JSE:ANG) Price Is Right But Growth Is Lacking

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JSE:ANG
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When close to half the companies in South Africa have price-to-earnings ratios (or "P/E's") above 13x, you may consider AngloGold Ashanti Limited (JSE:ANG) as an attractive investment with its 7.9x 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 limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, AngloGold Ashanti has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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 AngloGold Ashanti

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JSE:ANG Price Based on Past Earnings July 26th 2021
Keen to find out how analysts think AngloGold Ashanti's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

AngloGold Ashanti's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 128%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 1.7% per annum over the next three years. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

In light of this, it's understandable that AngloGold Ashanti's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From AngloGold Ashanti's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of AngloGold Ashanti's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for AngloGold Ashanti that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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