Yahoo Finance What Is Crest Nicholson Holdings's (LON:CRST) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Crest Nicholson Holdings (LON:CRST) share price has dived 64% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 49% drop over twelve months.
All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. 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). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
See our latest analysis for Crest Nicholson Holdings
How Does Crest Nicholson Holdings's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 5.67 that sentiment around Crest Nicholson Holdings isn't particularly high. The image below shows that Crest Nicholson Holdings has a lower P/E than the average (7.1) P/E for companies in the consumer durables industry.
This suggests that market participants think Crest Nicholson Holdings will underperform other companies in its industry. Since the market seems unimpressed with Crest Nicholson Holdings, 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.
How Growth Rates Impact P/E Ratios
When earnings fall, the 'E' decreases, over time. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Crest Nicholson Holdings's earnings per share fell by 40% in the last twelve months. And EPS is down 3.9% a year, over the last 5 years. This could justify a pessimistic P/E.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
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.
So What Does Crest Nicholson Holdings's Balance Sheet Tell Us?
The extra options and safety that comes with Crest Nicholson Holdings's UK£38m net cash position means that it deserves a higher P/E than it would if it had a lot of net debt.
The Verdict On Crest Nicholson Holdings's P/E Ratio
Crest Nicholson Holdings has a P/E of 5.7. That's below the average in the GB market, which is 11.2. 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. What can be absolutely certain is that the market has become more pessimistic about Crest Nicholson Holdings over the last month, with the P/E ratio falling from 15.9 back then to 5.7 today. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. 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.
You might be able to find a better buy than Crest Nicholson Holdings. 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.
