Yahoo Finance Here’s What Uni-Select Inc.’s (TSE:UNS) P/E Ratio Is Telling Us
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Uni-Select Inc.’s (TSE:UNS) P/E ratio could help you assess the value on offer. Based on the last twelve months, Uni-Select’s P/E ratio is 13.11. That is equivalent to an earnings yield of about 7.6%.
See our latest analysis for Uni-Select
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for Uni-Select:
P/E of 13.11 = $14.76 (Note: this is the share price in the reporting currency, namely, USD ) ÷ $1.13 (Based on the year to September 2018.)
Is A High Price-to-Earnings 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. 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 Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the ‘E’ increases, over time. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.
Uni-Select saw earnings per share decrease by 2.1% last year. But over the longer term (5 years) earnings per share have increased by 20%.
How Does Uni-Select’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. If you look at the image below, you can see Uni-Select has a lower P/E than the average (17.5) in the retail distributors industry classification.
This suggests that market participants think Uni-Select 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. You should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don’t Consider The Balance Sheet
Don’t forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
How Does Uni-Select’s Debt Impact Its P/E Ratio?
Uni-Select has net debt worth 63% of its market capitalization. This is a reasonably significant level of debt — all else being equal you’d expect a much lower P/E than if it had net cash.
The Bottom Line On Uni-Select’s P/E Ratio
Uni-Select has a P/E of 13.1. That’s around the same as the average in the CA market, which is 13.4. With significant debt and no EPS growth last year, the P/E suggests shareholders are expecting higher profit in the future.
Investors have an opportunity when market expectations about a stock are wrong. 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 they key to an excellent investment decision.
You might be able to find a better buy than Uni-Select. 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).
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
