Yahoo Finance Does Société Française de Casinos Société Anonyme’s (EPA:SFCA) PE Ratio Signal A Buying Opportunity?
This article is intended for those of you who are at the beginning of your investing journey and want to begin learning about how to value company based on its current earnings and what are the drawbacks of this method.
Société Française de Casinos Société Anonyme (EPA:SFCA) trades with a trailing P/E of 11.6x, which is lower than the industry average of 25x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for.
See our latest analysis for Société Française de Casinos Société Anonyme
Demystifying the P/E ratio
A common ratio used for relative valuation is the P/E ratio. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for SFCA
Price-Earnings Ratio = Price per share ÷ Earnings per share
SFCA Price-Earnings Ratio = €1.84 ÷ €0.158 = 11.6x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to SFCA, such as capital structure and profitability. A common peer group is companies that exist in the same industry, which is what I use. Since SFCA’s P/E of 11.6 is lower than its industry peers (25), it means that investors are paying less for each dollar of SFCA’s earnings. This multiple is a median of profitable companies of 10 Hospitality companies in FR including Groupe Partouche, Société Fermière du Casino Municipal de Cannes and Sodexo. You can think of it like this: the market is suggesting that SFCA is a weaker business than the average comparable company.
Assumptions to be aware of
However, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to SFCA, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with SFCA, 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 SFCA to are fairly valued by the market. If this does not hold, there is a possibility that SFCA’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to SFCA. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. 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 SFCA’s future growth? Take a look at our free research report of analyst consensus for SFCA’s outlook.
Past Track Record: Has SFCA 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 SFCA’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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
