Yahoo Finance Do You Know What Questor Technology Inc.'s (CVE:QST) P/E Ratio Means?
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This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at Questor Technology Inc.'s (CVE:QST) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Questor Technology has a P/E ratio of 17.16. That is equivalent to an earnings yield of about 5.8%.
See our latest analysis for Questor Technology
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Questor Technology:
P/E of 17.16 = CA$4.77 ÷ CA$0.28 (Based on the trailing twelve months to March 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each CA$1 the company has earned over the last year. 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 Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. 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. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
It's nice to see that Questor Technology grew EPS by a stonking 33% in the last year. And it has bolstered its earnings per share by 19% per year over the last five years. So we'd generally expect it to have a relatively high P/E ratio.
How Does Questor Technology's P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. We can see in the image below that the average P/E (22.8) for companies in the energy services industry is higher than Questor Technology's P/E.
Questor Technology's P/E tells us that market participants think it will not fare as well as its peers in the same industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. You should delve deeper. I like to check if company insiders have been buying or selling.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
Is Debt Impacting Questor Technology's P/E?
Questor Technology has net cash of CA$7.2m. That should lead to a higher P/E than if it did have debt, because its strong balance sheets gives it more options.
The Verdict On Questor Technology's P/E Ratio
Questor Technology has a P/E of 17.2. That's higher than the average in the CA market, which is 15.3. The excess cash it carries is the gravy on top its fast EPS growth. So based on this analysis we'd expect Questor Technology to have a high P/E ratio.
Investors should be looking to buy stocks that the market is wrong about. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine.' So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
But note: Questor Technology may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
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.
