Yahoo Finance Do You Like Sensata Technologies Holding plc (NYSE:ST) At This P/E Ratio?
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at Sensata Technologies Holding plc's (NYSE:ST) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Sensata Technologies Holding has a P/E ratio of 14.03. That is equivalent to an earnings yield of about 7.1%.
See our latest analysis for Sensata Technologies Holding
How Do I Calculate A Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Sensata Technologies Holding:
P/E of 14.03 = $48.02 ÷ $3.42 (Based on the year to June 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each $1 of company earnings. 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.
How Does Sensata Technologies Holding's P/E Ratio Compare To Its Peers?
One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. As you can see below Sensata Technologies Holding has a P/E ratio that is fairly close for the average for the electrical industry, which is 14.8.
That indicates that the market expects Sensata Technologies Holding will perform roughly in line with other companies in its industry. So if Sensata Technologies Holding actually outperforms its peers going forward, that should be a positive for the share price. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
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. When earnings grow, the 'E' increases, over time. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Notably, Sensata Technologies Holding grew EPS by a whopping 30% in the last year. And earnings per share have improved by 17% annually, over the last five years. So we'd generally expect it to have a relatively high P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
So What Does Sensata Technologies Holding's Balance Sheet Tell Us?
Sensata Technologies Holding's net debt equates to 32% of its market capitalization. While it's worth keeping this in mind, it isn't a worry.
The Verdict On Sensata Technologies Holding's P/E Ratio
Sensata Technologies Holding has a P/E of 14.0. That's below the average in the US market, which is 17.4. The company hasn't stretched its balance sheet, and earnings growth was good last year. The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not 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. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
You might be able to find a better buy than Sensata Technologies Holding. 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.
