Yahoo Finance How Does Kirby's (NYSE:KEX) P/E Compare To Its Industry, After Its Big Share Price Gain?
Kirby (NYSE:KEX) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month alone, although it is still down 46% over the last quarter. But shareholders may not all be feeling jubilant, since the share price is still down 38% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. 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). The implication here is that deep value investors might steer clear when expectations of a company are too high. 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.
Check out our latest analysis for Kirby
Does Kirby Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 20.63 that there is some investor optimism about Kirby. You can see in the image below that the average P/E (8.4) for companies in the shipping industry is lower than Kirby's P/E.
Its relatively high P/E ratio indicates that Kirby shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
In the last year, Kirby grew EPS like Taylor Swift grew her fan base back in 2010; the 81% gain was both fast and well deserved. Regrettably, the longer term performance is poor, with EPS down 14% per year over 5 years.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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 Kirby's P/E?
Kirby's net debt equates to 46% of its market capitalization. While it's worth keeping this in mind, it isn't a worry.
The Bottom Line On Kirby's P/E Ratio
Kirby trades on a P/E ratio of 20.6, which is above its market average of 13.7. While the company does use modest debt, its recent earnings growth is superb. So to be frank we are not surprised it has a high P/E ratio. What is very clear is that the market has become significantly more optimistic about Kirby over the last month, with the P/E ratio rising from 15.4 back then to 20.6 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.
When the market is wrong about a stock, it gives savvy investors an opportunity. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. 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.
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.
