It's not a stretch to say that DT Midstream, Inc.'s (NYSE:DTM) price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for DT Midstream as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is DT Midstream's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like DT Midstream's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 3.6%. The latest three year period has also seen a 23% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 5.7% per annum during the coming three years according to the seven analysts following the company. With the market predicted to deliver 10% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it interesting that DT Midstream is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From DT Midstream's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of DT Midstream's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for DT Midstream you should be aware of.

If these risks are making you reconsider your opinion on DT Midstream, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.