The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we'll show how Cnl Capital EKES - AIFM's (ATH:CNLCAP) P/E ratio could help you assess the value on offer. Based on the last twelve months, Cnl Capital E.K.E.S. - AIFM's P/E ratio is 35.87. That corresponds to an earnings yield of approximately 2.8%.
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Cnl Capital E.K.E.S. - AIFM:
P/E of 35.87 = €9.69 ÷ €0.27 (Based on the trailing twelve months to June 2018.)
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 isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Cnl Capital E.K.E.S. - AIFM's earnings per share grew by -7.1% in the last twelve months.
How Does Cnl Capital E.K.E.S. - AIFM's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. You can see in the image below that the average P/E (16.7) for companies in the capital markets industry is lower than Cnl Capital E.K.E.S. - AIFM's P/E.
ATSE:CNLCAP PE PEG Gauge October 31st 18
Cnl Capital E.K.E.S. - AIFM's P/E tells us that market participants think the company will perform better than its industry peers, going forward. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The 'Price' in P/E reflects the market capitalization of the company. That means it doesn't take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
Cnl Capital E.K.E.S. - AIFM's Balance Sheet
Since Cnl Capital E.K.E.S. - AIFM holds net cash of €203k, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Bottom Line On Cnl Capital E.K.E.S. - AIFM's P/E Ratio
Cnl Capital E.K.E.S. - AIFM trades on a P/E ratio of 35.9, which is multiples above the GR market average of 11.7. Earnings improved over the last year. Also positive, the relatively strong balance sheet will allow for investment in growth -- and the P/E indicates shareholders that will happen!
When the market is wrong about a stock, it gives savvy investors an opportunity. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.
About ATSE:CNLCAP
Cnl Capital E.K.E.S. - AIFM
Provides short- and medium-term financing solutions to SMEs.
