In This Article:
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll look at Hutter & Schrantz Stahlbau AG's (VIE:HST) P/E ratio and reflect on what it tells us about the company's share price. Based on the last twelve months, Hutter & Schrantz Stahlbau's P/E ratio is 10.72. That means that at current prices, buyers pay €10.72 for every €1 in trailing yearly profits.
View our latest analysis for Hutter & Schrantz Stahlbau
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Hutter & Schrantz Stahlbau:
P/E of 10.72 = €27 ÷ €2.52 (Based on the year to December 2018.)
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 isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
Does Hutter & Schrantz Stahlbau Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Hutter & Schrantz Stahlbau has a higher P/E than the average (9.1) P/E for companies in the construction industry.
That means that the market expects Hutter & Schrantz Stahlbau will outperform other companies in its industry. The market is optimistic about the future, but that doesn't guarantee future growth. So investors should delve deeper. I like to check if company insiders have been buying or 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. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Hutter & Schrantz Stahlbau's earnings per share fell by 44% in the last twelve months. But it has grown its earnings per share by 7.2% per year over the last three years. And it has shrunk its earnings per share by 13% per year over the last five years. This might lead to muted expectations.
Remember: P/E Ratios Don't Consider The Balance Sheet
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. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).