It's not a stretch to say that Antero Midstream Corporation's (NYSE:AM) price-to-earnings (or "P/E") ratio of 19x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Recent times have been pleasing for Antero Midstream as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
How Is Antero Midstream's Growth Trending?
The only time you'd be comfortable seeing a P/E like Antero Midstream's is when the company's growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a worthy increase of 14%. The solid recent performance means it was also able to grow EPS by 11% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 12% per annum over the next three years. That's shaping up to be similar to the 10% per annum growth forecast for the broader market.
In light of this, it's understandable that Antero Midstream's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What We Can Learn From Antero Midstream's P/E?
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Antero Midstream maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Antero Midstream you should know about.
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.
