Yahoo Finance What Is Ströer SE KGaA's (ETR:SAX) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Ströer SE KGaA (ETR:SAX) share price has dived 35% in the last thirty days. The recent drop has obliterated the annual return, with the share price now down 13% over that longer period.
All else being equal, a share price drop should make a stock more 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. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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.
See our latest analysis for Ströer SE KGaA
Does Ströer SE KGaA Have A Relatively High Or Low P/E For Its Industry?
Ströer SE KGaA's P/E of 24.00 indicates some degree of optimism towards the stock. The image below shows that Ströer SE KGaA has a higher P/E than the average (22.1) P/E for companies in the media industry.
That means that the market expects Ströer SE KGaA will outperform other companies in its industry. Clearly the market expects growth, but it isn't guaranteed. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
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. 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. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Ströer SE KGaA saw earnings per share improve by 2.3% last year. And earnings per share have improved by 35% annually, over the last five years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
How Does Ströer SE KGaA's Debt Impact Its P/E Ratio?
Ströer SE KGaA's net debt is 22% of its market cap. It would probably deserve a higher P/E ratio if it was net cash, since it would have more options for growth.
The Verdict On Ströer SE KGaA's P/E Ratio
Ströer SE KGaA's P/E is 24.0 which is above average (16.6) in its market. With debt at prudent levels and improving earnings, it's fair to say the market expects steady progress in the future. What can be absolutely certain is that the market has become significantly less optimistic about Ströer SE KGaA over the last month, with the P/E ratio falling from 37.2 back then to 24.0 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.
Investors should be looking to buy stocks that the market is wrong about. 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 find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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.
