In This Article:
The Beluga Group (MCX:BELU) share price has done well in the last month, posting a gain of 31%. Zooming out, the annual gain of 114% knocks our socks off.
All else being equal, a sharp share price increase should make a stock less 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 some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
Check out our latest analysis for Beluga Group
Does Beluga Group Have A Relatively High Or Low P/E For Its Industry?
Beluga Group's P/E of 11.27 indicates relatively low sentiment towards the stock. If you look at the image below, you can see Beluga Group has a lower P/E than the average (20.4) in the beverage industry classification.
Its relatively low P/E ratio indicates that Beluga Group shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Beluga Group, it's quite possible it could surprise on the upside. 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
P/E ratios primarily reflect market expectations around earnings growth rates. 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.
In the last year, Beluga Group grew EPS like Taylor Swift grew her fan base back in 2010; the 59% gain was both fast and well deserved. Even better, EPS is up 76% per year over three years. So you might say it really deserves to have an above-average P/E ratio.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. 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.
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.