This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll look at Internationella Engelska Skolan i Sverige Holdings II AB (publ)’s (STO:ENG) P/E ratio and reflect on what it tells us about the company’s share price. Internationella Engelska Skolan i Sverige Holdings II has a P/E ratio of 26.06, based on the last twelve months. That corresponds to an earnings yield of approximately 3.8%.
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How Do I Calculate A Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Internationella Engelska Skolan i Sverige Holdings II:
P/E of 26.06 = SEK66.6 ÷ SEK2.56 (Based on the year to September 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each SEK1 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
P/E ratios primarily reflect market expectations around earnings growth rates. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.
Internationella Engelska Skolan i Sverige Holdings II’s earnings per share fell by 34% in the last twelve months. But it has grown its earnings per share by 9.7% per year over the last five years.
How Does Internationella Engelska Skolan i Sverige Holdings II’s P/E Ratio Compare To Its Peers?
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 Internationella Engelska Skolan i Sverige Holdings II has a lower P/E than the average (30.4) in the consumer services industry classification.
This suggests that market participants think Internationella Engelska Skolan i Sverige Holdings II will underperform other companies in its industry. Since the market seems unimpressed with Internationella Engelska Skolan i Sverige Holdings II, it’s quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.