Amkor Technology, Inc.’s (NASDAQ:AMKR) price-to-earnings (or “P/E”) ratio of 10.5x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E’s above 39x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.
Recent times have been pleasing for Amkor Technology as its earnings have risen in spite of the market’s earnings going into reverse. One possibility is that the P/E is low because investors think the company’s earnings are going to fall away like everyone else’s soon. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s out of favour.
If you’d like to see what analysts are forecasting going forward, you should check out our free report on Amkor Technology.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Amkor Technology would need to produce sluggish growth that’s trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 416%. However, the latest three year period hasn’t been as great in aggregate as it didn’t manage to provide any growth at all. Accordingly, shareholders probably wouldn’t have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 1.9% per annum during the coming three years according to the dual analysts following the company. That’s shaping up to be materially lower than the 13% per year growth forecast for the broader market.
With this information, we can see why Amkor Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Amkor Technology’s P/E?
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We’ve established that Amkor Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won’t provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example – Amkor Technology has 1 warning sign we think you should be aware of.
You might be able to find a better investment than Amkor Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
This article by Simply Wall St is general in nature. 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.