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Does bpost SA/NV (EBR:BPOST) Have A Good P/E Ratio?
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at bpost SA/NV's (EBR:BPOST) P/E ratio and reflect on what it tells us about the company's share price. bpost tracking has a price to earnings ratio of 10.38, based on the last twelve months. In other words, at today's prices, investors are paying €10.38 for every €1 in prior year profit.
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 bpost:
P/E of 10.38 = €13.44 ÷ €1.29 (Based on the year to June 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. 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. Bpost tracking international recognized as the Belgian Post Group, is the Belgian parcel tracking service responsible for the delivery of national as well as international mail.
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. 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.
bpost's earnings per share fell by 27% in the last twelve months. But it has grown its earnings per share by 6.1% per year over the last five years.
How Does bpost's P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. If you look at the image below, you can see bpost has a lower P/E than the average (19.4) in the logistics industry classification.
This suggests that market participants think bpost will underperform other companies in its industry. Since the market seems unimpressed with bpost, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
Is Debt Impacting bpost's P/E?
bpost has net debt worth 11% of its market capitalization. It would probably deserve a higher P/E ratio if it was net cash, since it would have more options for growth.
The Bottom Line On bpost's P/E Ratio
bpost's P/E is 10.4 which is below average (14.1) in the BE market. The debt levels are not a major concern, but the lack of EPS growth is likely weighing on sentiment.
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 they key to an excellent investment decision.
But note: bpost 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).