Yahoo Finance Does Rogers Communications Inc.'s (TSE:RCI.B) P/E Ratio Signal A Buying Opportunity?
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll show how you can use Rogers Communications Inc.'s (TSE:RCI.B) P/E ratio to inform your assessment of the investment opportunity. Rogers Communications has a P/E ratio of 16.06, based on the last twelve months. That is equivalent to an earnings yield of about 6.2%.
View our latest analysis for Rogers Communications
How Do I Calculate Rogers Communications's Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Rogers Communications:
P/E of 16.06 = CAD64.94 ÷ CAD4.04 (Based on the trailing twelve months to September 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 CAD1 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.
Does Rogers Communications Have A Relatively High Or Low P/E For Its Industry?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Rogers Communications has a lower P/E than the average (21.9) P/E for companies in the wireless telecom industry.
This suggests that market participants think Rogers Communications will underperform other companies in its industry. Since the market seems unimpressed with Rogers Communications, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
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. 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. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Rogers Communications's earnings per share were pretty steady over the last year. But it has grown its earnings per share by 8.8% per year over the last five years.
Remember: P/E Ratios Don't Consider The Balance Sheet
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).
Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.
So What Does Rogers Communications's Balance Sheet Tell Us?
Net debt totals 53% of Rogers Communications's market cap. This is enough debt that you'd have to make some adjustments before using the P/E ratio to compare it to a company with net cash.
The Bottom Line On Rogers Communications's P/E Ratio
Rogers Communications has a P/E of 16.1. That's around the same as the average in the CA market, which is 15.8. It has significant debt, though the market seems to take confidence from recent earnings growth.
Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course you might be able to find a better stock than Rogers Communications. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
