Yahoo Finance Should We Worry About I.M.A. Industria Macchine Automatiche S.p.A.'s (BIT:IMA) P/E Ratio?
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to I.M.A. Industria Macchine Automatiche S.p.A.'s (BIT:IMA), to help you decide if the stock is worth further research. What is I.M.A. Industria Macchine Automatiche's P/E ratio? Well, based on the last twelve months it is 24.27. That means that at current prices, buyers pay €24.27 for every €1 in trailing yearly profits.
Check out our latest analysis for I.M.A. Industria Macchine Automatiche
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for I.M.A. Industria Macchine Automatiche:
P/E of 24.27 = €66.30 ÷ €2.73 (Based on the year to June 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each €1 the company has earned over the last year. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Does I.M.A. Industria Macchine Automatiche's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. You can see in the image below that the average P/E (15.8) for companies in the machinery industry is lower than I.M.A. Industria Macchine Automatiche's P/E.
Its relatively high P/E ratio indicates that I.M.A. Industria Macchine Automatiche shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
I.M.A. Industria Macchine Automatiche shrunk earnings per share by 16% over the last year. But it has grown its earnings per share by 19% per year over the last five years.
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. 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).
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).
How Does I.M.A. Industria Macchine Automatiche's Debt Impact Its P/E Ratio?
I.M.A. Industria Macchine Automatiche's net debt is 11% 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 I.M.A. Industria Macchine Automatiche's P/E Ratio
I.M.A. Industria Macchine Automatiche's P/E is 24.3 which is above average (17.4) in its market. With a bit of debt, but a lack of recent growth, it's safe to say the market is expecting improved profit performance from the company, in the next few years.
Investors have an opportunity when market expectations about a stock are wrong. 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 visual report on analyst forecasts could hold the key to an excellent investment decision.
You might be able to find a better buy than I.M.A. Industria Macchine Automatiche. 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.
