Yahoo Finance Is Openjobmetis S.p.A.'s (BIT:OJM) P/E Ratio Really That Good?
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll show how you can use Openjobmetis S.p.A.'s (BIT:OJM) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Openjobmetis's P/E ratio is 8.78. That means that at current prices, buyers pay €8.78 for every €1 in trailing yearly profits.
Check out our latest analysis for Openjobmetis
How Do I Calculate A Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Openjobmetis:
P/E of 8.78 = €6.95 ÷ €0.79 (Based on the trailing twelve months to June 2019.)
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 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 Openjobmetis's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Openjobmetis has a lower P/E than the average (17.7) P/E for companies in the professional services industry.
This suggests that market participants think Openjobmetis will underperform other companies in its industry. Since the market seems unimpressed with Openjobmetis, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. 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. Then, a lower P/E should attract more buyers, pushing the share price up.
Openjobmetis's earnings per share fell by 5.9% in the last twelve months. But it has grown its earnings per share by 14% per year over the last three years.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. 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.
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
How Does Openjobmetis's Debt Impact Its P/E Ratio?
Openjobmetis's net debt is 18% of its market cap. That's enough debt to impact the P/E ratio a little; so keep it in mind if you're comparing it to companies without debt.
The Verdict On Openjobmetis's P/E Ratio
Openjobmetis's P/E is 8.8 which is below average (16.1) in the IT market. 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. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
You might be able to find a better buy than Openjobmetis. 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.
