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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to Oma Säästöpankki Oyj's (HEL:OMASP), to help you decide if the stock is worth further research. Looking at earnings over the last twelve months, Oma Säästöpankki Oyj has a P/E ratio of 7.92. That means that at current prices, buyers pay €7.92 for every €1 in trailing yearly profits.
View our latest analysis for Oma Säästöpankki Oyj
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 Oma Säästöpankki Oyj:
P/E of 7.92 = €7.30 ÷ €0.92 (Based on the trailing twelve months to June 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each €1 the company has earned over the last year. 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.
Does Oma Säästöpankki Oyj Have A Relatively High Or Low P/E For Its Industry?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Oma Säästöpankki Oyj has a lower P/E than the average (9.2) P/E for companies in the banks industry.
Its relatively low P/E ratio indicates that Oma Säästöpankki Oyj shareholders think it will struggle to do as well as other companies in its industry classification. 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
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. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Oma Säästöpankki Oyj shrunk earnings per share by 3.6% last year.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.