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Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll apply a basic P/E ratio analysis to Technocraft Industries (India) Limited's (NSE:TIIL), to help you decide if the stock is worth further research. Technocraft Industries (India) has a P/E ratio of 9.32, based on the last twelve months. That is equivalent to an earnings yield of about 11%.
See our latest analysis for Technocraft Industries (India)
How Do You Calculate Technocraft Industries (India)'s P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Technocraft Industries (India):
P/E of 9.32 = ₹444.8 ÷ ₹47.73 (Based on the trailing twelve months to March 2019.)
Is A High P/E Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing 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
P/E ratios primarily reflect market expectations around earnings growth rates. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Technocraft Industries (India)'s earnings per share grew by -4.5% in the last twelve months. And its annual EPS growth rate over 5 years is 11%.
Does Technocraft Industries (India) Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio essentially measures market expectations of a company. The image below shows that Technocraft Industries (India) has a lower P/E than the average (16.7) P/E for companies in the machinery industry.
Its relatively low P/E ratio indicates that Technocraft Industries (India) 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.
Remember: P/E Ratios Don't Consider The Balance Sheet
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.