Yahoo Finance Federal Agricultural Mortgage Corporation (NYSE:AGM) Might Not Be As Mispriced As It Looks
When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Federal Agricultural Mortgage Corporation (NYSE:AGM) as an attractive investment with its 11.5x P/E ratio. 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 Federal Agricultural Mortgage 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Federal Agricultural Mortgage
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Federal Agricultural Mortgage.
How Is Federal Agricultural Mortgage's Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Federal Agricultural Mortgage's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow EPS by 88% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 15% over the next year. With the market only predicted to deliver 10%, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Federal Agricultural Mortgage's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Federal Agricultural Mortgage currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
Having said that, be aware Federal Agricultural Mortgage is showing 1 warning sign in our investment analysis, you should know about.
If these risks are making you reconsider your opinion on Federal Agricultural Mortgage, 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.
