Yahoo Finance Here's What AKCEPT Finance S.A.'s (WSE:AFC) P/E Is Telling Us
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Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. To keep it practical, we'll show how AKCEPT Finance S.A.'s (WSE:AFC) P/E ratio could help you assess the value on offer. What is AKCEPT Finance's P/E ratio? Well, based on the last twelve months it is 18.61. In other words, at today's prices, investors are paying PLN18.61 for every PLN1 in prior year profit.
View our latest analysis for AKCEPT Finance
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for AKCEPT Finance:
P/E of 18.61 = PLN0.39 ÷ PLN0.021 (Based on the year to December 2018.)
Is A High P/E Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
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. Then, a higher P/E might scare off shareholders, pushing the share price down.
AKCEPT Finance's earnings per share grew by -6.1% in the last twelve months. In contrast, EPS has decreased by 30%, annually, over 5 years.
Does AKCEPT Finance Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio indicates whether the market has higher or lower expectations of a company. You can see in the image below that the average P/E (12.9) for companies in the diversified financial industry is lower than AKCEPT Finance's P/E.
Its relatively high P/E ratio indicates that AKCEPT Finance shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
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.
AKCEPT Finance's Balance Sheet
AKCEPT Finance has net debt worth a very significant 291% of its market capitalization. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you're comparing it to other stocks.
The Bottom Line On AKCEPT Finance's P/E Ratio
AKCEPT Finance's P/E is 18.6 which is above average (10.6) in the PL market. With meaningful debt and only modest recent earnings growth, the market is either expecting reliable long-term growth, or a near-term improvement.
When the market is wrong about a stock, it gives savvy investors an opportunity. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
You might be able to find a better buy than AKCEPT Finance. 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).
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.
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. Thank you for reading.
