When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Atkore Inc. (NYSE:ATKR) as an attractive investment with its 8.5x P/E ratio.  Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.  

With earnings that are retreating more than the market's of late, Atkore has been very sluggish.   The P/E is probably low because investors think this poor earnings performance isn't going to improve at all.  If you still like the company, you'd want its earnings trajectory to turn around before making any decisions.  If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.    

Check out our latest analysis for Atkore

NYSE:ATKR Price to Earnings Ratio vs Industry January 9th 2024

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Atkore.

Does Growth Match The Low P/E?  

Atkore'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.  

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line.   Still, the latest three year period has seen an excellent 480% 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 five analysts covering the company suggest earnings growth is heading into negative territory, declining 13% over the next year.  Meanwhile, the broader market is forecast to expand by 9.9%, which paints a poor picture.

With this information, we are not surprised that Atkore is trading at a P/E lower than the market.  However, shrinking earnings are unlikely to lead to a stable P/E over the longer term.  Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.  

The Final Word

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.

We've established that Atkore maintains its low P/E on the weakness of its forecast for sliding earnings, as expected.  At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio.  It's hard to see the share price rising strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Atkore that you need to be mindful of.  

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.