Yahoo Finance Here's How P/E Ratios Can Help Us Understand Société Marseillaise du Tunnel Prado Carénage (EPA:SMTPC)
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 Société Marseillaise du Tunnel Prado Carénage's (EPA:SMTPC) P/E ratio could help you assess the value on offer. What is Société Marseillaise du Tunnel Prado Carénage's P/E ratio? Well, based on the last twelve months it is 8.45. In other words, at today's prices, investors are paying €8.45 for every €1 in prior year profit.
View our latest analysis for Société Marseillaise du Tunnel Prado Carénage
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Société Marseillaise du Tunnel Prado Carénage:
P/E of 8.45 = €17.450 ÷ €2.064 (Based on the trailing twelve months to December 2019.)
(Note: the above calculation results may not be precise due to rounding.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each €1 the company has earned over the last year. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
Does Société Marseillaise du Tunnel Prado Carénage 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. If you look at the image below, you can see Société Marseillaise du Tunnel Prado Carénage has a lower P/E than the average (12.2) in the infrastructure industry classification.
This suggests that market participants think Société Marseillaise du Tunnel Prado Carénage will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. 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.
Société Marseillaise du Tunnel Prado Carénage shrunk earnings per share by 22% over the last year. And over the longer term (3 years) earnings per share have decreased 5.2% annually. This might lead to low expectations.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on 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).
Société Marseillaise du Tunnel Prado Carénage's Balance Sheet
With net cash of €30m, Société Marseillaise du Tunnel Prado Carénage has a very strong balance sheet, which may be important for its business. Having said that, at 30% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.
The Bottom Line On Société Marseillaise du Tunnel Prado Carénage's P/E Ratio
Société Marseillaise du Tunnel Prado Carénage has a P/E of 8.5. That's below the average in the FR market, which is 14.4. The recent drop in earnings per share would almost certainly temper expectations, 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.
Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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.
