In This Article:
Glen Burnie Bancorp (NASDAQ:GLBZ) shares have retraced a considerable in the last month, but the stock is still up slightly on where it started the quarter. The bad news is that the recent drop obliterated the last year's worth of gains; the stock is flat over twelve months.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. 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. The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock 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 Glen Burnie Bancorp
Does Glen Burnie Bancorp Have A Relatively High Or Low P/E For Its Industry?
Glen Burnie Bancorp's P/E of 20.15 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (12.9) for companies in the banks industry is lower than Glen Burnie Bancorp's P/E.
Its relatively high P/E ratio indicates that Glen Burnie Bancorp shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. 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. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Glen Burnie Bancorp increased earnings per share by a whopping 44% last year. And its annual EPS growth rate over 3 years is 7.9%. I'd therefore be a little surprised if its P/E ratio was not relatively high. Unfortunately, earnings per share are down 7.2% a year, over 5 years.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. 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.