Yahoo Finance Here's What BIOREM Inc.'s (CVE:BRM) P/E Ratio Is Telling Us
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). To keep it practical, we'll show how BIOREM Inc.'s (CVE:BRM) P/E ratio could help you assess the value on offer. What is BIOREM's P/E ratio? Well, based on the last twelve months it is 2.88. That corresponds to an earnings yield of approximately 35%.
Check out our latest analysis for BIOREM
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for BIOREM:
P/E of 2.88 = CA$0.35 ÷ CA$0.12 (Based on the year to June 2019.)
Is A High P/E Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. All else being equal, it's better to pay a low price -- but as Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'
How Does BIOREM's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that BIOREM has a lower P/E than the average (11.1) P/E for companies in the commercial services industry.
BIOREM's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with BIOREM, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. 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.
In the last year, BIOREM grew EPS like Taylor Swift grew her fan base back in 2010; the 176% gain was both fast and well deserved. Even better, EPS is up 37% per year over three years. So you might say it really deserves to have an above-average P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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 BIOREM's Balance Sheet Tell Us?
With net cash of CA$5.8m, BIOREM has a very strong balance sheet, which may be important for its business. Having said that, at 43% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.
The Verdict On BIOREM's P/E Ratio
BIOREM has a P/E of 2.9. That's below the average in the CA market, which is 14.2. Not only should the net cash position reduce risk, but the recent growth has been impressive. The below average P/E ratio suggests that market participants don't believe the strong growth will continue.
When the market is wrong about a stock, it gives savvy investors an opportunity. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course you might be able to find a better stock than BIOREM. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
