How Does Shreyas Shipping and Logistics's (NSE:SHREYAS) P/E Compare To Its Industry, After Its Big Share Price Gain?

Shreyas Shipping and Logistics (NSE:SHREYAS) shares have continued recent momentum with a 41% gain in the last month alone. But that will do little to salve the savage burn caused by the 56% share price decline, over the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

View our latest analysis for Shreyas Shipping and Logistics

How Does Shreyas Shipping and Logistics's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 7.86 that sentiment around Shreyas Shipping and Logistics isn't particularly high. The image below shows that Shreyas Shipping and Logistics has a lower P/E than the average (9.4) P/E for companies in the shipping industry.

Its relatively low P/E ratio indicates that Shreyas Shipping and Logistics shareholders think it will struggle to do as well as other companies in its industry classification. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

Shreyas Shipping and Logistics's earnings per share fell by 61% in the last twelve months. And over the longer term (5 years) earnings per share have decreased 1.8% annually. This growth rate might warrant a below average P/E ratio.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

How Does Shreyas Shipping and Logistics's Debt Impact Its P/E Ratio?

Shreyas Shipping and Logistics's net debt is considerable, at 213% of its market cap. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.

The Bottom Line On Shreyas Shipping and Logistics's P/E Ratio

Shreyas Shipping and Logistics has a P/E of 7.9. That's below the average in the IN market, which is 10.9. Given meaningful debt, and a lack of recent growth, the market looks to be extrapolating this recent performance; reflecting low expectations for the future. What we know for sure is that investors are becoming less uncomfortable about Shreyas Shipping and Logistics's prospects, since they have pushed its P/E ratio from 5.6 to 7.9 over the last month. If you like to buy stocks that could be turnaround opportunities, then this one might be a candidate; but if you're more sensitive to price, then you may feel the opportunity has passed.

When the market is wrong about a stock, it gives savvy investors an opportunity. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

But note: Shreyas Shipping and Logistics may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

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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. Thank you for reading.