Yahoo Finance How Does Semapa - Sociedade de Investimento e Gestão SGPS's (ELI:SEM) P/E Compare To Its Industry, After The Share Price Drop?
Unfortunately for some shareholders, the Semapa - Sociedade de Investimento e Gestão SGPS (ELI:SEM) share price has dived 42% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 53% drop over twelve months.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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.
Check out our latest analysis for Semapa - Sociedade de Investimento e Gestão SGPS
Does Semapa - Sociedade de Investimento e Gestão SGPS Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 4.59 that sentiment around Semapa - Sociedade de Investimento e Gestão SGPS isn't particularly high. We can see in the image below that the average P/E (8.9) for companies in the forestry industry is higher than Semapa - Sociedade de Investimento e Gestão SGPS's P/E.
Semapa - Sociedade de Investimento e Gestão SGPS's P/E tells us that market participants think it will not fare as well as its peers in the same industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
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. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Semapa - Sociedade de Investimento e Gestão SGPS saw earnings per share decrease by 6.1% last year. But EPS is up 9.1% over the last 5 years.
Remember: P/E Ratios Don't Consider The Balance Sheet
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. 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.
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 Semapa - Sociedade de Investimento e Gestão SGPS's Balance Sheet Tell Us?
Semapa - Sociedade de Investimento e Gestão SGPS has net debt worth a very significant 271% of its market capitalization. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.
The Verdict On Semapa - Sociedade de Investimento e Gestão SGPS's P/E Ratio
Semapa - Sociedade de Investimento e Gestão SGPS has a P/E of 4.6. That's below the average in the PT market, which is 9.9. When you consider that the company has significant debt, and didn't grow EPS last year, it isn't surprising that the market has muted expectations. What can be absolutely certain is that the market has become more pessimistic about Semapa - Sociedade de Investimento e Gestão SGPS over the last month, with the P/E ratio falling from 7.9 back then to 4.6 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.
Investors should be looking to buy stocks that the market is wrong about. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
Of course you might be able to find a better stock than Semapa - Sociedade de Investimento e Gestão SGPS. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
