What Is KION GROUP's (ETR:KGX) P/E Ratio After Its Share Price Rocketed?

November 07, 2019
  •  Updated
September 30, 2022
XTRA:KGX
Source: Shutterstock

It's really great to see that even after a strong run, KION GROUP (ETR:KGX) shares have been powering on, with a gain of 33% in the last thirty days. The full year gain of 17% is pretty reasonable, too.

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. So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

View our latest analysis for KION GROUP

How Does KION GROUP's P/E Ratio Compare To Its Peers?

KION GROUP has a P/E ratio of 14.46. As you can see below KION GROUP has a P/E ratio that is fairly close for the average for the machinery industry, which is 14.5.

XTRA:KGX Price Estimation Relative to Market, November 8th 2019
XTRA:KGX Price Estimation Relative to Market, November 8th 2019

That indicates that the market expects KION GROUP will perform roughly in line with other companies in its industry.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. 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.

KION GROUP increased earnings per share by an impressive 11% over the last twelve months. And its annual EPS growth rate over 5 years is 19%. This could arguably justify a relatively high P/E ratio. The market might expect further growth, but it isn't guaranteed. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.

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. 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).

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.

KION GROUP's Balance Sheet

KION GROUP has net debt equal to 35% of its market cap. While it's worth keeping this in mind, it isn't a worry.

The Verdict On KION GROUP's P/E Ratio

KION GROUP has a P/E of 14.5. That's below the average in the DE market, which is 19.9. The company does have a little debt, and EPS growth was good last year. If it continues to grow, then the current low P/E may prove to be unjustified. What we know for sure is that investors have become more excited about KION GROUP recently, since they have pushed its P/E ratio from 10.9 to 14.5 over the last month. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.

Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free report on the analyst consensus forecasts could help you make a master move on this stock.

Of course you might be able to find a better stock than KION GROUP. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.

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. Thank you for reading.

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