Yahoo Finance A Sliding Share Price Has Us Looking At SYZYGY AG's (ETR:SYZ) P/E Ratio
Unfortunately for some shareholders, the SYZYGY (ETR:SYZ) share price has dived 34% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 44% in that time.
All else being equal, a share price drop should make a stock more attractive to potential investors. 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). The implication here is that long term investors have an opportunity when expectations of a company are too low. Perhaps the simplest way to get a read on investors' expectations of a business 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.
View our latest analysis for SYZYGY
Does SYZYGY Have A Relatively High Or Low P/E For Its Industry?
SYZYGY's P/E of 16.35 indicates relatively low sentiment towards the stock. The image below shows that SYZYGY has a lower P/E than the average (24.6) P/E for companies in the media industry.
Its relatively low P/E ratio indicates that SYZYGY shareholders think it will struggle to do as well as other companies in its industry classification. 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 even if the current P/E is low, it will increase over time if the share price stays flat. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
SYZYGY shrunk earnings per share by 14% over the last year. And it has shrunk its earnings per share by 3.1% per year over the last five years. This growth rate might warrant a below average P/E ratio.
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. 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).
SYZYGY's Balance Sheet
Since SYZYGY holds net cash of €7.2m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On SYZYGY's P/E Ratio
SYZYGY has a P/E of 16.4. That's around the same as the average in the DE market, which is 16.8. Although the recent drop in earnings per share would keep the market cautious, the healthy balance sheet means the company retains potential for future growth. So it's not surprising to see it trade on a P/E roughly in line with the market. What can be absolutely certain is that the market has become significantly less optimistic about SYZYGY over the last month, with the P/E ratio falling from 24.8 back then to 16.4 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.
Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course you might be able to find a better stock than SYZYGY. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
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