This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll look at KRUK Spólka Akcyjna’s (WSE:KRU) P/E ratio and reflect on what it tells us about the company’s share price. KRUK Spólka Akcyjna has a P/E ratio of 11.54, based on the last twelve months. That means that at current prices, buyers pay PLN11.54 for every PLN1 in trailing yearly profits.
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for KRUK Spólka Akcyjna:
P/E of 11.54 = PLN173.5 ÷ PLN15.04 (Based on the trailing twelve months 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 PLN1 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
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the ‘E’ increases, over time. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.
KRUK Spólka Akcyjna shrunk earnings per share by 21% over the last year. But over the longer term (5 years) earnings per share have increased by 19%.
How Does KRUK Spólka Akcyjna’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 KRUK Spólka Akcyjna has a higher P/E than the average (9.9) P/E for companies in the consumer finance industry.
Its relatively high P/E ratio indicates that KRUK Spólka Akcyjna shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
Remember: P/E Ratios Don’t Consider The Balance Sheet
The ‘Price’ in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. 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).
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 KRUK Spólka Akcyjna’s Debt Impact Its P/E Ratio?
Net debt totals 66% of KRUK Spólka Akcyjna’s market cap. This is a reasonably significant level of debt — all else being equal you’d expect a much lower P/E than if it had net cash.
The Bottom Line On KRUK Spólka Akcyjna’s P/E Ratio
KRUK Spólka Akcyjna’s P/E is 11.5 which is above average (10.3) in the PL market. With significant debt and no EPS growth last year, shareholders are betting on an improvement in earnings from the company.
Investors should be looking to buy stocks that the market is wrong about. 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 visual report on analyst forecasts could hold they key to an excellent investment decision.
But note: KRUK Spólka Akcyjna 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).
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 firstname.lastname@example.org.