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G-III Apparel Group (NASDAQ:GIII) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month alone, although it is still down 15% over the last quarter. But shareholders may not all be feeling jubilant, since the share price is still down 39% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. 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 G-III Apparel Group
How Does G-III Apparel Group's P/E Ratio Compare To Its Peers?
G-III Apparel Group's P/E of 8.49 indicates relatively low sentiment towards the stock. The image below shows that G-III Apparel Group has a lower P/E than the average (16.7) P/E for companies in the luxury industry.
This suggests that market participants think G-III Apparel Group will underperform other companies in its industry. Since the market seems unimpressed with G-III Apparel Group, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Notably, G-III Apparel Group grew EPS by a whopping 40% in the last year. And it has bolstered its earnings per share by 8.3% per year over the last five years. I'd therefore be a little surprised if its P/E ratio was not relatively high.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.