This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at PJSC PhosAgro's (MCX:PHOR) P/E ratio and reflect on what it tells us about the company's share price. PJSC PhosAgro has a P/E ratio of 8.57, based on the last twelve months. That is equivalent to an earnings yield of about 12%.

View our latest analysis for PJSC PhosAgro

How Do I Calculate PJSC PhosAgro's Price To Earnings Ratio?

The formula for price to earnings is:

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

Or for PJSC PhosAgro:

P/E of 8.57 = RUB2406 ÷ RUB280.76 (Based on the trailing twelve months to March 2019.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that buyers have to pay a higher price for each RUB1 the company has earned over the last year. 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.

Does PJSC PhosAgro Have A Relatively High Or Low P/E For Its Industry?

We can get an indication of market expectations by looking at the P/E ratio. You can see in the image below that the average P/E (5.5) for companies in the chemicals industry is lower than PJSC PhosAgro's P/E.

Its relatively high P/E ratio indicates that PJSC PhosAgro shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

When earnings fall, the 'E' decreases, over time. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

In the last year, PJSC PhosAgro grew EPS like Taylor Swift grew her fan base back in 2010; the 82% gain was both fast and well deserved. The sweetener is that the annual five year growth rate of 42% is also impressive. With that kind of growth rate we would generally expect a high P/E ratio. Unfortunately, earnings per share are down 6.8% a year, over 3 years.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. Thus, the metric does not reflect cash or debt held by the company. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).