AptarGroup, Inc.'s (NYSE:ATR) Business Is Trailing The Market But Its Shares Aren't

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 19x, you may consider AptarGroup, Inc. (NYSE:ATR) as a stock to potentially avoid with its 23.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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AptarGroup certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for AptarGroup

How Is AptarGroup's Growth Trending?

In order to justify its P/E ratio, AptarGroup would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. The latest three year period has also seen an excellent 69% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 4.3% per year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 11% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it concerning that AptarGroup is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Our examination of AptarGroup's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for AptarGroup that you should be aware of.

If you're unsure about the strength of AptarGroup's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.