To the annoyance of some shareholders, German High Street Properties (CPH:GERHSP) shares are down a considerable 34% in the last month. The recent drop has obliterated the annual return, with the share price now down 25% over that longer period.

Assuming nothing else has changed, a lower share price makes a stock more 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 long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

See our latest analysis for German High Street Properties

How Does German High Street Properties's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 23.23 that there is some investor optimism about German High Street Properties. You can see in the image below that the average P/E (10.1) for companies in the real estate industry is lower than German High Street Properties's P/E.

Its relatively high P/E ratio indicates that German High Street Properties shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

If earnings fall then in the future the 'E' will be lower. That means even if the current P/E is low, it will increase over time if the share price stays flat. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

German High Street Properties increased earnings per share by 6.7% last year. Unfortunately, earnings per share are down 5.8% a year, over 5 years.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

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. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.

So What Does German High Street Properties's Balance Sheet Tell Us?

Net debt totals a substantial 108% of German High Street Properties's market cap. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.