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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 Quirin Privatbank AG's (ETR:QB7) P/E ratio to inform your assessment of the investment opportunity. What is Quirin Privatbank's P/E ratio? Well, based on the last twelve months it is 16.82. That corresponds to an earnings yield of approximately 5.9%.
View our latest analysis for Quirin Privatbank
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Quirin Privatbank:
P/E of 16.82 = €1.51 ÷ €0.090 (Based on the year to December 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. 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.
How Growth Rates Impact P/E Ratios
When earnings fall, the 'E' decreases, over time. That means even if the current P/E is low, it will increase over time if the share price stays flat. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
It's nice to see that Quirin Privatbank grew EPS by a stonking 27% in the last year. And it has bolstered its earnings per share by 19% per year over the last five years. With that performance, I would expect it to have an above average P/E ratio. Unfortunately, earnings per share are down 3.5% a year, over 3 years.
How Does Quirin Privatbank'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 Quirin Privatbank has a lower P/E than the average (19) P/E for companies in the capital markets industry.
This suggests that market participants think Quirin Privatbank will underperform other companies in its industry. Many investors like to buy stocks when the market is pessimistic about their prospects. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
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. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.