Yahoo Finance A Sliding Share Price Has Us Looking At Apogee Enterprises, Inc.'s (NASDAQ:APOG) P/E Ratio
Unfortunately for some shareholders, the Apogee Enterprises (NASDAQ:APOG) share price has dived 42% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 48% in that time.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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 long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
View our latest analysis for Apogee Enterprises
Does Apogee Enterprises Have A Relatively High Or Low P/E For Its Industry?
Apogee Enterprises's P/E of 13.40 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (16.5) for companies in the building industry is higher than Apogee Enterprises's P/E.
This suggests that market participants think Apogee Enterprises will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Apogee Enterprises saw earnings per share decrease by 50% last year. And it has shrunk its earnings per share by 1.8% per year over the last five years. This could justify a pessimistic P/E.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
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.
Apogee Enterprises's Balance Sheet
Apogee Enterprises has net debt equal to 48% of its market cap. While it's worth keeping this in mind, it isn't a worry.
The Bottom Line On Apogee Enterprises's P/E Ratio
Apogee Enterprises's P/E is 13.4 which is about average (12.6) in the US market. With modest debt, and a lack of recent growth, it would seem the market is expecting improvement in earnings. What can be absolutely certain is that the market has become significantly less optimistic about Apogee Enterprises over the last month, with the P/E ratio falling from 23.0 back then to 13.4 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course you might be able to find a better stock than Apogee Enterprises. 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.
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. Thank you for reading.
