In This Article:
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll look at Apollo Hospitals Enterprise Limited's (NSE:APOLLOHOSP) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Apollo Hospitals Enterprise has a P/E ratio of 76.59. That is equivalent to an earnings yield of about 1.3%.
Check out our latest analysis for Apollo Hospitals Enterprise
How Do I Calculate Apollo Hospitals Enterprise's Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Apollo Hospitals Enterprise:
P/E of 76.59 = ₹1427.55 ÷ ₹18.64 (Based on the trailing twelve months to June 2019.)
Is A High Price-to-Earnings Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
Does Apollo Hospitals Enterprise Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio essentially measures market expectations of a company. The image below shows that Apollo Hospitals Enterprise has a significantly higher P/E than the average (22.8) P/E for companies in the healthcare industry.
Its relatively high P/E ratio indicates that Apollo Hospitals Enterprise shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
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. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Apollo Hospitals Enterprise's earnings made like a rocket, taking off 76% last year. Having said that, if we look back three years, EPS growth has averaged a comparatively less impressive 3.1%. Unfortunately, earnings per share are down 3.9% a year, over 5 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. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.