Does Evli Pankki Oyj’s (HEL:EVLI) P/E Ratio Signal A Buying Opportunity?

Lawrence Carr

Wed, Feb 6, 2019, 10:10 PM

This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Evli Pankki Oyj’s (HEL:EVLI) P/E ratio to inform your assessment of the investment opportunity. Evli Pankki Oyj has a P/E ratio of 13.09, based on the last twelve months. That is equivalent to an earnings yield of about 7.6%.

Check out our latest analysis for Evli Pankki Oyj

How Do You Calculate A P/E Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)

Or for Evli Pankki Oyj:

P/E of 13.09 = €8.9 ÷ €0.68 (Based on the year to December 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each €1 of company earnings. That isn’t a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business’s prospects, relative to stocks with a lower P/E.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. 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.

Evli Pankki Oyj saw earnings per share decrease by 5.6% last year. But EPS is up 15% over the last 3 years. And it has shrunk its earnings per share by 13% per year over the last five years. So it would be surprising to see a high P/E.

How Does Evli Pankki Oyj’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 Evli Pankki Oyj has a lower P/E than the average (16.4) in the capital markets industry classification.

Its relatively low P/E ratio indicates that Evli Pankki Oyj shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Evli Pankki Oyj, it’s quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

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.