What Is OT-Optima Telekom d.d's (ZGSE:OPTE) P/E Ratio After Its Share Price Tanked?

Unfortunately for some shareholders, the OT-Optima Telekom d.d (ZGSE:OPTE) share price has dived 31% in the last thirty days. If we look back over the last year, the stock has gained 63% which is great, even in a bull market.

All else being equal, a share price drop should make a stock more 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. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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.

Check out our latest analysis for OT-Optima Telekom d.d

How Does OT-Optima Telekom d.d's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 24.50 that there is some investor optimism about OT-Optima Telekom d.d. You can see in the image below that the average P/E (17.1) for companies in the telecom industry is lower than OT-Optima Telekom d.d's P/E.

That means that the market expects OT-Optima Telekom d.d will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means unless the share price falls, the P/E will increase in a few years. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

OT-Optima Telekom d.d's earnings made like a rocket, taking off 173% last year. Regrettably, the longer term performance is poor, with EPS down 26% per year over 5 years.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

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 OT-Optima Telekom d.d's P/E?

Net debt totals 99% of OT-Optima Telekom d.d's market cap. This is enough debt that you'd have to make some adjustments before using the P/E ratio to compare it to a company with net cash.

The Verdict On OT-Optima Telekom d.d's P/E Ratio

OT-Optima Telekom d.d trades on a P/E ratio of 24.5, which is above its market average of 9.5. While its debt levels are rather high, at least its EPS is growing quickly. So despite the debt it is, perhaps, not unreasonable to see a high P/E ratio. What can be absolutely certain is that the market has become significantly less optimistic about OT-Optima Telekom d.d over the last month, with the P/E ratio falling from 35.6 back then to 24.5 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.

Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. Although we don't have analyst forecasts shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

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 modest (or no) debt, trading on a P/E below 20.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.