This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Motor Oil (Hellas) Corinth Refineries S.A.’s (ATH:MOH) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Motor Oil (Hellas) Corinth Refineries’s P/E ratio is 9.01. That corresponds to an earnings yield of approximately 11%.
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Motor Oil (Hellas) Corinth Refineries:
P/E of 9.01 = €20.94 ÷ €2.32 (Based on the year to December 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each €1 of company earnings. That isn’t a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business’s prospects, relative to stocks with a lower P/E.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means even if the current P/E is high, it will reduce over time if the share price stays flat. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Motor Oil (Hellas) Corinth Refineries saw earnings per share decrease by 18% last year. But it has grown its earnings per share by 45% per year over the last five years.
How Does Motor Oil (Hellas) Corinth Refineries’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Motor Oil (Hellas) Corinth Refineries has a lower P/E than the average (9.9) P/E for companies in the oil and gas industry.
Motor Oil (Hellas) Corinth Refineries’s P/E tells us that market participants think it will not fare as well as its peers in the same industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
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. 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.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
How Does Motor Oil (Hellas) Corinth Refineries’s Debt Impact Its P/E Ratio?
Motor Oil (Hellas) Corinth Refineries has net debt worth 11% of its market capitalization. That’s enough debt to impact the P/E ratio a little; so keep it in mind if you’re comparing it to companies without debt.
The Bottom Line On Motor Oil (Hellas) Corinth Refineries’s P/E Ratio
Motor Oil (Hellas) Corinth Refineries has a P/E of 9. That’s below the average in the GR market, which is 13.8. Since it only carries a modest debt load, it’s likely the low expectations implied by the P/E ratio arise from the lack of recent earnings growth.
When the market is wrong about a stock, it gives savvy investors an opportunity. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
But note: Motor Oil (Hellas) Corinth Refineries 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).
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 firstname.lastname@example.org. 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.