Yahoo Finance Do You Like BIOREM Inc. (CVE:BRM) At This P/E Ratio?
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We’ll show how you can use BIOREM Inc.’s (CVE:BRM) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, BIOREM’s P/E ratio is 10.2. That means that at current prices, buyers pay CA$10.2 for every CA$1 in trailing yearly profits.
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How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for BIOREM:
P/E of 10.2 = CA$0.37 ÷ CA$0.036 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each CA$1 the company has earned over the last year. That isn’t a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business’s prospects, relative to stocks with a lower P/E.
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.
Notably, BIOREM grew EPS by a whopping 120% in the last year. And it has bolstered its earnings per share by 17% per year over the last five years. So we’d generally expect it to have a relatively high P/E ratio. In contrast, EPS has decreased by 54%, annually, over 3 years.
How Does BIOREM’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. If you look at the image below, you can see BIOREM has a lower P/E than the average (15.9) in the commercial services industry classification.
This suggests that market participants think BIOREM will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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).
Is Debt Impacting BIOREM’s P/E?
The extra options and safety that comes with BIOREM’s CA$3.6m net cash position means that it deserves a higher P/E than it would if it had a lot of net debt.
The Bottom Line On BIOREM’s P/E Ratio
BIOREM has a P/E of 10.2. That’s below the average in the CA market, which is 14.2. The net cash position gives plenty of options to the business, and the recent improvement in EPS is good to see. The relatively low P/E ratio implies the market is pessimistic.
When the market is wrong about a stock, it gives savvy investors an opportunity. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. We don’t have analyst forecasts, but you might want to assess this data-rich visualization of earnings, revenue and cash flow.
But note: BIOREM 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).
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
