Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. To keep it practical, we'll show how Ktima Kostas Lazaridis S.A.'s (ATH:KTILA) P/E ratio could help you assess the value on offer. Based on the last twelve months, Ktima Kostas Lazaridis's P/E ratio is 15.51. That means that at current prices, buyers pay €15.51 for every €1 in trailing yearly profits.

View our latest analysis for Ktima Kostas Lazaridis

How Do I Calculate A Price To Earnings Ratio?

The formula for P/E is:

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

Or for Ktima Kostas Lazaridis:

P/E of 15.51 = €1.56 ÷ €0.10 (Based on the year to December 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio implies that investors pay a higher price for the earning power of the business. 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.

Does Ktima Kostas Lazaridis Have A Relatively High Or Low P/E For Its Industry?

The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Ktima Kostas Lazaridis has a lower P/E than the average (21.9) P/E for companies in the beverage industry.

Its relatively low P/E ratio indicates that Ktima Kostas Lazaridis shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. 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

Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. And in that case, the P/E ratio itself will drop rather quickly. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Ktima Kostas Lazaridis's earnings made like a rocket, taking off 383% last year.

Remember: P/E Ratios Don't Consider The Balance Sheet

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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

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.