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The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We’ll show how you can use ANY Security Printing Company Public Limited Company’s (BUSE:ANY) P/E ratio to inform your assessment of the investment opportunity. ANY Security Printing has a price to earnings ratio of 15.55, based on the last twelve months. That corresponds to an earnings yield of approximately 6.4%.
How Do You Calculate ANY Security Printing’s P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for ANY Security Printing:
P/E of 15.55 = HUF1340 ÷ HUF86.18 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each HUF1 the company has earned over the last year. 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
If earnings fall then in the future the ‘E’ will be lower. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others — and that may encourage shareholders to sell.
It’s great to see that ANY Security Printing grew EPS by 14% in the last year. And it has bolstered its earnings per share by 5.0% per year over the last five years. So one might expect an above average P/E ratio. But earnings per share are down 3.4% per year over the last three years.
How Does ANY Security Printing’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. You can see in the image below that the average P/E (16.7) for companies in the commercial services industry is roughly the same as ANY Security Printing’s P/E.
ANY Security Printing’s P/E tells us that market participants think its prospects are roughly in line with its industry. So if ANY Security Printing actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as the tenure of the board and management could help you form your own view on if that will happen.
Remember: P/E Ratios Don’t Consider The Balance Sheet
The ‘Price’ in P/E reflects the market capitalization of the company. That means it doesn’t take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future), by taking on debt (or spending its remaining cash).
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.
Is Debt Impacting ANY Security Printing’s P/E?
ANY Security Printing has net debt worth 23% 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 Verdict On ANY Security Printing’s P/E Ratio
ANY Security Printing has a P/E of 15.5. That’s around the same as the average in the HU market, which is 15.1. With only modest debt levels, and strong earnings growth, the market seems to doubt that the growth can be maintained.
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.’ So this free report on the analyst consensus forecasts could help you make a master move on this stock.
But note: ANY Security Printing 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. On rare occasion, data errors may occur. Thank you for reading.