Yahoo Finance Here's How P/E Ratios Can Help Us Understand KWS SAAT SE & Co. KGaA (ETR:KWS)
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll show how you can use KWS SAAT SE & Co. KGaA's (ETR:KWS) P/E ratio to inform your assessment of the investment opportunity. What is KWS SAAT SE KGaA's P/E ratio? Well, based on the last twelve months it is 19.38. In other words, at today's prices, investors are paying €19.38 for every €1 in prior year profit.
View our latest analysis for KWS SAAT SE KGaA
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 KWS SAAT SE KGaA:
P/E of 19.38 = EUR57.60 ÷ EUR2.97 (Based on the trailing twelve months to September 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Does KWS SAAT SE KGaA's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. We can see in the image below that the average P/E (22.7) for companies in the food industry is higher than KWS SAAT SE KGaA's P/E.
Its relatively low P/E ratio indicates that KWS SAAT SE KGaA shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. Earnings growth means that in the future the 'E' will be higher. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
KWS SAAT SE KGaA saw earnings per share decrease by 1.2% last year. But it has grown its earnings per share by 5.8% per year over the last five years.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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).
How Does KWS SAAT SE KGaA's Debt Impact Its P/E Ratio?
KWS SAAT SE KGaA has net debt equal to 29% of its market cap. You'd want to be aware of this fact, but it doesn't bother us.
The Verdict On KWS SAAT SE KGaA's P/E Ratio
KWS SAAT SE KGaA has a P/E of 19.4. That's below the average in the DE market, which is 21.1. Since it only carries a modest debt load, it's likely the low expectations implied by the P/E ratio arise from the lack of recent earnings growth.
When the market is wrong about a stock, it gives savvy investors an opportunity. 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.
