Yahoo Finance What Is Banco Bilbao Vizcaya Argentaria's (BME:BBVA) P/E Ratio After Its Share Price Tanked?
To the annoyance of some shareholders, Banco Bilbao Vizcaya Argentaria (BME:BBVA) shares are down a considerable 35% in the last month. That drop has capped off a tough year for shareholders, with the share price down 39% in that time.
All else being equal, a share price drop should make a stock more attractive to potential investors. 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). The implication here is that long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
Check out our latest analysis for Banco Bilbao Vizcaya Argentaria
Does Banco Bilbao Vizcaya Argentaria Have A Relatively High Or Low P/E For Its Industry?
Banco Bilbao Vizcaya Argentaria's P/E of 6.67 indicates some degree of optimism towards the stock. As you can see below, Banco Bilbao Vizcaya Argentaria has a higher P/E than the average company (5.9) in the banks industry.
Banco Bilbao Vizcaya Argentaria's P/E tells us that market participants think the company will perform better than its industry peers, going forward. The market is optimistic about the future, but that doesn't guarantee future growth. So investors should delve deeper. I like to check if company insiders have been buying or selling.
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. Then, a higher P/E might scare off shareholders, pushing the share price down.
Banco Bilbao Vizcaya Argentaria saw earnings per share decrease by 38% last year. But EPS is up 3.2% over the last 5 years. And it has shrunk its earnings per share by 1.6% per year over the last three years. This growth rate might warrant a low P/E ratio.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
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.
So What Does Banco Bilbao Vizcaya Argentaria's Balance Sheet Tell Us?
With net cash of €8.9b, Banco Bilbao Vizcaya Argentaria has a very strong balance sheet, which may be important for its business. Having said that, at 43% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.
The Bottom Line On Banco Bilbao Vizcaya Argentaria's P/E Ratio
Banco Bilbao Vizcaya Argentaria has a P/E of 6.7. That's below the average in the ES market, which is 14.1. Falling earnings per share are likely to be keeping potential buyers away, the healthy balance sheet means the company retains potential for future growth. If that occurs, the current low P/E could prove to be temporary. Given Banco Bilbao Vizcaya Argentaria's P/E ratio has declined from 10.2 to 6.7 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
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 visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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.
