There’s reason to be concerned about the price of Air Transport Services Group, Inc. (NASDAQ:ATSG)

It’s no exaggeration to say that Air Transport Services Group, Inc. (NASDAQ:ATSG) price/earnings ratio (or “P/E”) of 16.2x currently looks quite “in between” compared to the market in the US, where the median P/E ratio is around 18x. Although this raises no eyebrows, if the P/E ratio is not justified, investors could miss a potential opportunity or ignore an impending disappointment.

With earnings growth lagging behind most other companies of late, Air Transport Services Group has been relatively slow. Many may expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. You would really hope so, otherwise you are paying a relatively high price for a company with this type of growth profile.

NasdaqGS: ATSG price based on prior earnings as of September 17, 2021

free report is an excellent starting point

What is the growth trend of Air Transport Services Group?

The only time you’d be comfortable seeing a P/E like Air Transport Services Group’s is when the company’s growth closely follows the market.

If we look at the last year of earnings growth, the company posted a tremendous 23% increase. EPS was also up 6.9% overall from three years ago, driven mainly by the last 12 months of growth. As a result, shareholders would likely have been satisfied with medium-term earnings growth rates.

Going forward, EPS is expected to grow 0.9% annually for the next three years, according to the four analysts who track the company. With the market expected to grow by 12% each year, the company is positioned for a weaker result.

In light of this, it is curious that the P/E of the Air Transport Services group is in line with that of the majority of other companies. Apparently, many of the company’s investors are less bearish than analysts indicate and aren’t willing to drop their stocks just yet. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh on stocks going forward.

The last word

It’s not a good idea to use the price-earnings ratio alone to determine whether you should sell your shares, but it can be a handy guide to the company’s future prospects.

Our review of Air Transport Services Group analyst forecasts revealed that its lower earnings outlook is not impacting its P/E as much as we would have expected. At this time, we are not comfortable with the P/E as expected future earnings are not likely to support more positive sentiment for long. This puts shareholders’ investments at risk and potential investors risk paying an unnecessary premium.

Before proceeding to the next step, you must know the 4 warning signs for Air Transport Services Group (1 is a bit unpleasant!) that we discovered.

Sure, you might find a fantastic investment by looking at a few good candidates. So take a look at this free list of companies with a solid growth history, trading on a P/E below 20x.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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