Yahoo Finance What Is Hibbett Sports's (NASDAQ:HIBB) P/E Ratio After Its Share Price Rocketed?
Those holding Hibbett Sports (NASDAQ:HIBB) shares must be pleased that the share price has rebounded 64% in the last thirty days. But unfortunately, the stock is still down by 49% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 36% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
See our latest analysis for Hibbett Sports
How Does Hibbett Sports's P/E Ratio Compare To Its Peers?
Hibbett Sports's P/E is 8.48. You can see in the image below that the average P/E (8.3) for companies in the specialty retail industry is roughly the same as Hibbett Sports's P/E.
Its P/E ratio suggests that Hibbett Sports shareholders think that in the future it will perform about the same as other companies in its industry classification. So if Hibbett Sports actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means unless the share price falls, the P/E will increase in a few years. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
Hibbett Sports had pretty flat EPS growth in the last year. And it has shrunk its earnings per share by 12% per year over the last five years. So you wouldn't expect a very high P/E.
Remember: P/E Ratios Don't Consider The Balance Sheet
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. 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).
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Hibbett Sports's Balance Sheet
With net cash of US$66m, Hibbett Sports has a very strong balance sheet, which may be important for its business. Having said that, at 31% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.
The Bottom Line On Hibbett Sports's P/E Ratio
Hibbett Sports has a P/E of 8.5. That's below the average in the US market, which is 13.3. EPS was up modestly better over the last twelve months. And the net cash position gives the company many options. So it's strange that the low P/E indicates low expectations. What we know for sure is that investors are becoming less uncomfortable about Hibbett Sports's prospects, since they have pushed its P/E ratio from 5.2 to 8.5 over the last month. For those who like to invest in turnarounds, that might mean it's time to put the stock on a watchlist, or research it. But others might consider the opportunity to have passed.
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. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course you might be able to find a better stock than Hibbett Sports. 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.
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