Yahoo Finance What Is BancorpSouth Bank's (NYSE:BXS) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the BancorpSouth Bank (NYSE:BXS) share price has dived 32% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 36% 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). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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 BancorpSouth Bank
Does BancorpSouth Bank Have A Relatively High Or Low P/E For Its Industry?
BancorpSouth Bank's P/E of 7.89 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (9.0) for companies in the banks industry is higher than BancorpSouth Bank's P/E.
BancorpSouth Bank'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 BancorpSouth Bank, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. 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.
BancorpSouth Bank's earnings per share grew by 3.2% in the last twelve months. And its annual EPS growth rate over 5 years is 14%.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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.
Is Debt Impacting BancorpSouth Bank's P/E?
BancorpSouth Bank has net debt worth 63% of its market capitalization. This is a reasonably significant level of debt -- all else being equal you'd expect a much lower P/E than if it had net cash.
The Bottom Line On BancorpSouth Bank's P/E Ratio
BancorpSouth Bank's P/E is 7.9 which is below average (13.4) in the US market. It's good to see EPS growth in the last 12 months, but the debt on the balance sheet might be muting expectations. What can be absolutely certain is that the market has become more pessimistic about BancorpSouth Bank over the last month, with the P/E ratio falling from 11.6 back then to 7.9 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
Investors should be looking to buy stocks that the market is wrong about. 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.
But note: BancorpSouth Bank may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio 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.
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. Thank you for reading.
