This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Shree Vasu Logistics Limited’s (NSE:SVLL) P/E ratio to inform your assessment of the investment opportunity. Shree Vasu Logistics has a price to earnings ratio of 15.89, based on the last twelve months. That corresponds to an earnings yield of approximately 6.3%.
View our latest analysis for Shree Vasu Logistics
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 Shree Vasu Logistics:
P/E of 15.89 = ₹64.2 ÷ ₹4.04 (Based on the trailing twelve months to March 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each ₹1 of company earnings. All else being equal, it’s better to pay a low price — but as Warren Buffett said, ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. 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. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.
Notably, Shree Vasu Logistics grew EPS by a whopping 186% in the last year. And its annual EPS growth rate over 5 years is 32%. So we’d generally expect it to have a relatively high P/E ratio.
How Does Shree Vasu Logistics’s P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. As you can see below Shree Vasu Logistics has a P/E ratio that is fairly close for the average for the logistics industry, which is 16.3.
Shree Vasu Logistics’s P/E tells us that market participants think its prospects are roughly in line with its industry. The company could surprise by performing better than average, in the future. Checking factors such as the tenure of the board and management could help you form your own view on if that will happen.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The ‘Price’ in P/E reflects the market capitalization of the company. 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.