Yahoo Finance Is AXA SA’s (EPA:CS) PE Ratio A Signal To Buy For Investors?
I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in AXA SA (EPA:CS).
AXA SA (EPA:CS) is trading with a trailing P/E of 8.6x, which is lower than the industry average of 12.9x. While CS might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. Today, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. Check out our latest analysis for AXA
What you need to know about the P/E ratio
P/E is a popular ratio used for relative valuation. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for CS
Price-Earnings Ratio = Price per share ÷ Earnings per share
CS Price-Earnings Ratio = €21.58 ÷ €2.497 = 8.6x
On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as CS, such as size and country of operation. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. At 8.6x, CS’s P/E is lower than its industry peers (12.9x). This implies that investors are undervaluing each dollar of CS’s earnings. As such, our analysis shows that CS represents an under-priced stock.
Assumptions to be aware of
However, before you rush out to buy CS, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to CS. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with CS, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing CS to are fairly valued by the market. If this does not hold, there is a possibility that CS’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of CS to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for CS’s future growth? Take a look at our free research report of analyst consensus for CS’s outlook.
Past Track Record: Has CS been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CS’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass 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.
