Yahoo Finance Does Siemens Healthineers AG (ETR:SHL) Have A Good P/E Ratio?
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 Siemens Healthineers AG’s (ETR:SHL) P/E ratio to inform your assessment of the investment opportunity. Siemens Healthineers has a P/E ratio of 29.27, based on the last twelve months. That corresponds to an earnings yield of approximately 3.4%.
See our latest analysis for Siemens Healthineers
How Do You Calculate Siemens Healthineers’s P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Siemens Healthineers:
P/E of 29.27 = €37.91 ÷ €1.3 (Based on the year to December 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each €1 the company has earned over the last year. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the ‘E’ increases, over time. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.
Siemens Healthineers saw earnings per share decrease by 3.4% last year.
How Does Siemens Healthineers’s P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. As you can see below Siemens Healthineers has a P/E ratio that is fairly close for the average for the medical equipment industry, which is 31.2.
That indicates that the market expects Siemens Healthineers will perform roughly in line with other companies in its industry. If the company has better than average prospects, then the market might be underestimating it. Checking factors such as the tenure of the board and management could help you form your own view on if that will happen.
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. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
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).
Siemens Healthineers’s Balance Sheet
Siemens Healthineers has net debt worth just 8.8% of its market capitalization. So it doesn’t have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.
The Bottom Line On Siemens Healthineers’s P/E Ratio
Siemens Healthineers’s P/E is 29.3 which is above average (19.5) in the DE market. With modest debt but no EPS growth in the last year, it’s fair to say the P/E implies some optimism about future earnings, from the market.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
You might be able to find a better buy than Siemens Healthineers. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).
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.
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. Thank you for reading.
