Yahoo Finance Is Casey’s General Stores Inc’s (NASDAQ:CASY) PE Ratio A Signal To Buy For Investors?
This analysis is intended to introduce important early concepts to people who are starting to invest and want to start learning about core concepts of fundamental analysis on practical examples from today’s market.
Casey’s General Stores Inc (NASDAQ:CASY) is trading with a trailing P/E of 13.9, which is close to the industry average of 14.1. While CASY might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it.
Check out our latest analysis for Casey’s General Stores
Breaking down the Price-Earnings ratio
The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for CASY
Price-Earnings Ratio = Price per share ÷ Earnings per share
CASY Price-Earnings Ratio = $123.4 ÷ $8.871 = 13.9x
The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to CASY, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Casey’s General Stores Inc (NASDAQ:CASY) is trading with a trailing P/E of 13.9, which is close to the industry average of 14.1. This multiple is a median of profitable companies of 21 Consumer Retailing companies in US including HF Foods Group, Innovative Food Holdings and Ingles Markets. One could put it like this: the market is pricing CASY as if it is roughly average for its industry.
Assumptions to watch out for
However, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to CASY, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with CASY, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing CASY to are fairly valued by the market. If this does not hold true, CASY’s lower P/E ratio may be because firms in our peer group are overvalued by the market.
What this means for you:
Since you may have already conducted your due diligence on CASY, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for CASY’s future growth? Take a look at our free research report of analyst consensus for CASY’s outlook.
Past Track Record: Has CASY been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CASY’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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.
