Yahoo Finance What Is Aubay Société Anonyme's (EPA:AUB) P/E Ratio After Its Share Price Rocketed?
Those holding Aubay Société Anonyme (EPA:AUB) shares must be pleased that the share price has rebounded 32% in the last thirty days. But unfortunately, the stock is still down by 32% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 31% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
See our latest analysis for Aubay Société Anonyme
Does Aubay Société Anonyme Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 11.11 that sentiment around Aubay Société Anonyme isn't particularly high. If you look at the image below, you can see Aubay Société Anonyme has a lower P/E than the average (13.7) in the it industry classification.
Its relatively low P/E ratio indicates that Aubay Société Anonyme shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.
Aubay Société Anonyme's earnings per share fell by 3.8% in the last twelve months. But it has grown its earnings per share by 17% per year over the last five years.
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. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on 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).
So What Does Aubay Société Anonyme's Balance Sheet Tell Us?
Aubay Société Anonyme has net cash of €12m. That should lead to a higher P/E than if it did have debt, because its strong balance sheets gives it more options.
The Verdict On Aubay Société Anonyme's P/E Ratio
Aubay Société Anonyme's P/E is 11.1 which is below average (13.9) in the FR market. The recent drop in earnings per share would make investors cautious, the relatively strong balance sheet will allow the company time to invest in growth. If it achieves that, then there's real potential that the low P/E could eventually indicate undervaluation. What is very clear is that the market has become more optimistic about Aubay Société Anonyme over the last month, with the P/E ratio rising from 8.4 back then to 11.1 today. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.
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.
You might be able to find a better buy than Aubay Société Anonyme. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.
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. Thank you for reading.
