This article is written for those who want to get better at using price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Urals Stampings Plant PAO’s (MCX:URKZ) P/E ratio could help you assess the value on offer. Urals Stampings Plant PAO has a price to earnings ratio of 1.26, based on the last twelve months. That means that at current prices, buyers pay RUB1.26 for every RUB1 in trailing yearly profits.
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Urals Stampings Plant PAO:
P/E of 1.26 = RUB11160.00 ÷ RUB8886.34 (Based on the year to September 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Does Urals Stampings Plant PAO’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. If you look at the image below, you can see Urals Stampings Plant PAO has a lower P/E than the average (6.4) in the metals and mining industry classification.
This suggests that market participants think Urals Stampings Plant PAO will underperform other companies in its industry. Since the market seems unimpressed with Urals Stampings Plant PAO, it’s quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company’s P/E multiple. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.
Notably, Urals Stampings Plant PAO grew EPS by a whopping 42% in the last year. And earnings per share have improved by 16% annually, over the last five years. I’d therefore be a little surprised if its P/E ratio was not relatively high.
Remember: P/E Ratios Don’t Consider The Balance Sheet
It’s important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
While growth expenditure doesn’t always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Is Debt Impacting Urals Stampings Plant PAO’s P/E?
Urals Stampings Plant PAO has net debt equal to 29% of its market cap. You’d want to be aware of this fact, but it doesn’t bother us.
The Bottom Line On Urals Stampings Plant PAO’s P/E Ratio
Urals Stampings Plant PAO has a P/E of 1.3. That’s below the average in the RU market, which is 8.8. The EPS growth last year was strong, and debt levels are quite reasonable. If it continues to grow, then the current low P/E may prove to be unjustified.
Investors have an opportunity when market expectations about a stock are wrong. 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 might want to assess this data-rich visualization of earnings, revenue and cash flow.
But note: Urals Stampings Plant PAO 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).
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.