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 Hellenic Telecommunications Organization S.A.'s (ATH:HTO) P/E ratio to inform your assessment of the investment opportunity. Hellenic Telecommunications Organization has a price to earnings ratio of 28.05, based on the last twelve months. That means that at current prices, buyers pay €28.05 for every €1 in trailing yearly profits.
Check out our latest analysis for Hellenic Telecommunications Organization
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Hellenic Telecommunications Organization:
P/E of 28.05 = €11.780 ÷ €0.420 (Based on the year to December 2019.)
(Note: the above calculation results may not be precise due to rounding.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
Does Hellenic Telecommunications Organization 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. As you can see below, Hellenic Telecommunications Organization has a higher P/E than the average company (16.7) in the telecom industry.
That means that the market expects Hellenic Telecommunications Organization will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So investors should delve deeper. I like to check if company insiders have been buying or selling.
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. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.
Hellenic Telecommunications Organization saw earnings per share decrease by 21% last year. But EPS is up 14% over the last 3 years. And over the longer term (5 years) earnings per share have decreased 5.2% annually. This could justify a pessimistic P/E.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. 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.