Yahoo Finance What Is ProPetro Holding's (NYSE:PUMP) P/E Ratio After Its Share Price Rocketed?
ProPetro Holding (NYSE:PUMP) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month alone, although it is still down 47% over the last quarter. But that will do little to salve the savage burn caused by the 74% share price decline, over the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
Check out our latest analysis for ProPetro Holding
Does ProPetro Holding Have A Relatively High Or Low P/E For Its Industry?
ProPetro Holding's P/E of 2.99 indicates relatively low sentiment towards the stock. If you look at the image below, you can see ProPetro Holding has a lower P/E than the average (11.7) in the energy services industry classification.
ProPetro Holding's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with ProPetro Holding, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
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. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
ProPetro Holding shrunk earnings per share by 22% over the last year.
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. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.
How Does ProPetro Holding's Debt Impact Its P/E Ratio?
Since ProPetro Holding holds net cash of US$19m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On ProPetro Holding's P/E Ratio
ProPetro Holding trades on a P/E ratio of 3.0, which is below the US market average of 15.0. The recent drop in earnings per share would almost certainly temper expectations, but the net cash position means the company has time to improve: if so, the low P/E could be an opportunity. What is very clear is that the market has become less pessimistic about ProPetro Holding over the last month, with the P/E ratio rising from 2.3 back then to 3.0 today. If you like to buy stocks that could be turnaround opportunities, then this one might be a candidate; but if you're more sensitive to price, then you may feel the opportunity has passed.
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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.
