Yahoo Finance What Is Ten Entertainment Group's (LON:TEG) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Ten Entertainment Group (LON:TEG) share price has dived 35% in the last thirty days. The recent drop has obliterated the annual return, with the share price now down 11% over that longer period.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
View our latest analysis for Ten Entertainment Group
How Does Ten Entertainment Group's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 14.21 that sentiment around Ten Entertainment Group isn't particularly high. If you look at the image below, you can see Ten Entertainment Group has a lower P/E than the average (17.9) in the hospitality industry classification.
Ten Entertainment Group'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 Ten Entertainment Group, 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. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Ten Entertainment Group increased earnings per share by 4.9% last year. And it has improved its earnings per share by 35% per year over the last three years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
The 'Price' in P/E reflects the market capitalization of the company. That means it doesn't take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
Ten Entertainment Group's Balance Sheet
Net debt totals just 2.4% of Ten Entertainment Group's market cap. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.
The Bottom Line On Ten Entertainment Group's P/E Ratio
Ten Entertainment Group's P/E is 14.2 which is about average (13.9) in the GB market. When you consider the modest EPS growth last year (along with some debt), it seems the market thinks the growth is sustainable. What can be absolutely certain is that the market has become significantly less optimistic about Ten Entertainment Group over the last month, with the P/E ratio falling from 21.8 back then to 14.2 today. For those who don't like to trade against momentum, that could be a warning sign, but a contrarian investor might want to take a closer look.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. 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.
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