In This Article:
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll look at Gujarat Pipavav Port Limited’s (NSE:GPPL) P/E ratio and reflect on what it tells us about the company’s share price. Based on the last twelve months, Gujarat Pipavav Port’s P/E ratio is 21.38. That means that at current prices, buyers pay ₹21.38 for every ₹1 in trailing yearly profits.
View our latest analysis for Gujarat Pipavav Port
How Do You Calculate Gujarat Pipavav Port’s P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Gujarat Pipavav Port:
P/E of 21.38 = ₹97.75 ÷ ₹4.57 (Based on the trailing twelve months to March 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each ₹1 the company has earned over the last year. 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.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the ‘E’ will be lower. That means unless the share price falls, the P/E will increase in a few years. Then, a higher P/E might scare off shareholders, pushing the share price down.
Gujarat Pipavav Port shrunk earnings per share by 22% over the last year. But it has grown its earnings per share by 11% per year over the last five years. And EPS is down 10% a year, over the last 3 years. This growth rate might warrant a low P/E ratio.
How Does Gujarat Pipavav Port’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Gujarat Pipavav Port has a higher P/E than the average (17.8) P/E for companies in the infrastructure industry.
Its relatively high P/E ratio indicates that Gujarat Pipavav Port shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn’t guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits
Don’t forget that the P/E ratio considers market capitalization. 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 taking on debt (or spending its remaining cash).