Ultratron Limited (JSE: AEL) shares have had a very impressive month, gaining 28% after a previously volatile period. But last month’s gains weren’t enough to make shareholders healthy, as the share price has continued to fall 2.4% over the past 12 months.
After such a large price increase, Altron’s price-to-earnings (or “P/E”) ratio of 21.8x may seem like strong selling right now compared to the South African market, where nearly half of the companies whose P/E E ratio is 21.8x. AP/E ratio less than 8x and even a P/E less than 5x is quite normal. However, it is unwise to just take the P/E at face value, as this could explain why it is so high.
For example, let’s say that Altron’s financial performance has been poor lately as revenues have fallen. One possibility is that the P/E is high because investors believe the company will still be doing enough to outperform the broad market for the foreseeable future. If not, existing shareholders can get quite nervous about the viability of the share price.
Check out our latest analysis for Altron
Do you want the full picture of income, earnings and cash flow for the company? than ours free The report on Altron will help you shed light on its historical performance.
How is Altron growing?
Altron’s P/E ratio would be typical of a company that is expected to deliver very strong growth and, most importantly, significantly outperform the market.
Looking at last year’s results, the company’s earnings fell a disappointing 7.2%. This means earnings are also down in the long run, as earnings per share have fallen 73% overall over the past three years. Accordingly, shareholders may have been disappointed with medium-term earnings growth.
When we weigh that mid-term earnings trajectory against the broad market’s one-year forecast for 11% growth, things look bleak.
With this information we understand that Altron is trading at a higher P/E than the market. Apparently, many investors in the company are showing more optimistic sentiment than in the recent past and are unwilling to give up their shares at any cost. There is a very good chance that current shareholders are preparing for future disappointments as P/E falls to higher levels with recent negative growth rates.
Strong share price growth has also pushed Altron’s P/E to quite high levels. In general, we prefer to limit the use of the P/E ratio to establishing what the market perceives as a company’s overall health.
Our research on Eltron shows that declining earnings over the medium term are not impacting high PE nearly as much as we expected, given that the market is bound to rise. If we see earnings underperforming and underperforming market forecasts, we suspect the share price is in danger of falling, leading to a lower PE. If recent medium-term earnings trends continue, shareholders’ investments will be significantly jeopardized and potential investors will be at risk of paying exorbitant premiums.
Remember that there may be other risks as well. For example, we identified 3 warning signs for Altron (1 is a bit annoying) You should know.
Doubtless, You may even find a better stock than Altronso you might want to check it out free A collection of other companies that are on less than 20x P/E and have had strong revenue growth.
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This Simply Wall St article is general in nature. We only comment based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or your financial situation. We strive to provide you with long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or quality material. Simply Wall Street has no position in any of the listed stocks.
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