Yahoo Finance Is Energizer Holdings Inc (NYSE:ENR) A Sell At Its Current PE Ratio?
This article is intended for those of you who are at the beginning of your investing journey and want to begin learning the link between Energizer Holdings Inc (NYSE:ENR)’s fundamentals and stock market performance.
Energizer Holdings Inc (NYSE:ENR) trades with a trailing P/E of 29.5x, which is higher than the industry average of 19.8x. While ENR might seem like a stock to avoid or sell if you own it, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. Today, I will explain what the P/E ratio is as well as what you should look out for when using it. See our latest analysis for Energizer Holdings
Breaking down the Price-Earnings ratio
The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. 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 ENR
Price-Earnings Ratio = Price per share ÷ Earnings per share
ENR Price-Earnings Ratio = $61.71 ÷ $2.092 = 29.5x
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 ENR, such as size and country of operation. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. ENR’s P/E of 29.5x is higher than its industry peers (19.8x), which implies that each dollar of ENR’s earnings is being overvalued by investors. As such, our analysis shows that ENR represents an over-priced stock.
Assumptions to watch out for
Before you jump to the conclusion that ENR should be banished from your portfolio, it is important to realise that our conclusion rests on two assertions. Firstly, our peer group contains companies that are similar to ENR. 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 ENR, 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 ENR to are fairly valued by the market. If this does not hold, there is a possibility that ENR’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 rebalance your portfolio and reduce your holdings in ENR. 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 highly recommend you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for ENR’s future growth? Take a look at our free research report of analyst consensus for ENR’s outlook.
Past Track Record: Has ENR 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 ENR’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.
