In This Article:
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll look at Public Joint Stock Company "Ashinskiy metallurgical works"'s (MCX:AMEZ) P/E ratio and reflect on what it tells us about the company's share price. Ashinskiy metallurgical works has a P/E ratio of 2.27, based on the last twelve months. That corresponds to an earnings yield of approximately 44.1%.
Check out our latest analysis for Ashinskiy metallurgical works
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Ashinskiy metallurgical works:
P/E of 2.27 = RUB4.83 ÷ RUB2.13 (Based on the trailing twelve months to June 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 necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
Does Ashinskiy metallurgical works 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. If you look at the image below, you can see Ashinskiy metallurgical works has a lower P/E than the average (4.5) in the metals and mining industry classification.
This suggests that market participants think Ashinskiy metallurgical works will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. 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
Probably the most important factor in determining what P/E a company trades on is the earnings growth. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.
Notably, Ashinskiy metallurgical works grew EPS by a whopping 36% in the last year.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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.