Earnings Tell The Story For Apollo Global Management, Inc. (NYSE:APO) As Its Stock Soars 25%

Apollo Global Management, Inc. (NYSE:APO) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 2.7% isn't as impressive.

Since its price has surged higher, Apollo Global Management may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 32.9x, since almost half of all companies in the United States have P/E ratios under 15x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Apollo Global Management's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Apollo Global Management

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Apollo Global Management's earnings, revenue and cash flow.

Is There Enough Growth For Apollo Global Management?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Apollo Global Management's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. Even so, admirably EPS has lifted 57% in aggregate from three years ago, notwithstanding the last 12 months. 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.

This is in contrast to the rest of the market, which is expected to grow by 8.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Apollo Global Management's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

Apollo Global Management's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Apollo Global Management revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Apollo Global Management you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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