Yahoo Finance Here's What PARKEN Sport & Entertainment A/S's (CPH:PARKEN) P/E Ratio Is Telling Us
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll look at PARKEN Sport & Entertainment A/S's (CPH:PARKEN) P/E ratio and reflect on what it tells us about the company's share price. PARKEN Sport & Entertainment has a P/E ratio of 14.51, based on the last twelve months. That corresponds to an earnings yield of approximately 6.9%.
Check out our latest analysis for PARKEN Sport & Entertainment
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for PARKEN Sport & Entertainment:
P/E of 14.51 = DKK101.50 ÷ DKK7.00 (Based on the year to September 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. All else being equal, it's better to pay a low price -- but as Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price'.
How Does PARKEN Sport & Entertainment's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. We can see in the image below that the average P/E (20.9) for companies in the hospitality industry is higher than PARKEN Sport & Entertainment's P/E.
Its relatively low P/E ratio indicates that PARKEN Sport & Entertainment shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with PARKEN Sport & Entertainment, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and 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 even if the current P/E is low, it will increase over time if the share price stays flat. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
PARKEN Sport & Entertainment shrunk earnings per share by 13% over the last year. And EPS is down 13% a year, over the last 5 years. This could justify a pessimistic P/E.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in 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).
Is Debt Impacting PARKEN Sport & Entertainment's P/E?
Net debt totals a substantial 125% of PARKEN Sport & Entertainment's market cap. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.
The Bottom Line On PARKEN Sport & Entertainment's P/E Ratio
PARKEN Sport & Entertainment trades on a P/E ratio of 14.5, which is fairly close to the DK market average of 15.7. With meaningful debt, and no earnings per share growth last year, even an average P/E indicates that the market a significant improvement from the business.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
You might be able to find a better buy than PARKEN Sport & Entertainment. 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).
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.
