In This Article:
It's really great to see that even after a strong run, Saratov Oil Refinery (MCX:KRKN) shares have been powering on, with a gain of 33% in the last thirty days. Zooming out, the annual gain of 113% knocks our socks off.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for Saratov Oil Refinery
Does Saratov Oil Refinery Have A Relatively High Or Low P/E For Its Industry?
Saratov Oil Refinery's P/E of 1.85 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (5.9) for companies in the oil and gas industry is higher than Saratov Oil Refinery's P/E.
Its relatively low P/E ratio indicates that Saratov Oil Refinery 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
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. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Saratov Oil Refinery's earnings made like a rocket, taking off 249% last year. The cherry on top is that the five year growth rate was an impressive 21% per year. So I'd be surprised if the P/E ratio was not above average.
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. 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.