With a price-to-earnings (or "P/E") ratio of 13.5x Ramaco Resources, Inc. (NASDAQ:METC) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 31x are not unusual. 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 earnings that are retreating more than the market's of late, Ramaco Resources has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
NasdaqGS:METC Price to Earnings Ratio vs Industry February 6th 2024
Want the full picture on analyst estimates for the company? Then our free report on Ramaco Resources will help you uncover what's on the horizon.
Does Growth Match The Low P/E?
Ramaco Resources' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 54%. Still, the latest three year period has seen an excellent 2,980% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 41% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.
In light of this, it's peculiar that Ramaco Resources' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Ramaco Resources' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
We don't want to rain on the parade too much, but we did also find 5 warning signs for Ramaco Resources (1 is concerning!) that you need to be mindful 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 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.