Unfortunately for some shareholders, the Aptitude Software Group (LON:APTD) share price has dived 51% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 48% in that time.

All else being equal, a share price drop should make a stock more attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). 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). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

Check out our latest analysis for Aptitude Software Group

Does Aptitude Software Group Have A Relatively High Or Low P/E For Its Industry?

Aptitude Software Group's P/E is 22.89. As you can see below Aptitude Software Group has a P/E ratio that is fairly close for the average for the software industry, which is 22.9.

That indicates that the market expects Aptitude Software Group will perform roughly in line with other companies in its industry. So if Aptitude Software Group actually outperforms its peers going forward, that should be a positive for the share price. I would further inform my view by checking insider buying and selling., among other things.

How Growth Rates Impact P/E Ratios

When earnings fall, the 'E' decreases, over time. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

Most would be impressed by Aptitude Software Group earnings growth of 10% in the last year. And it has bolstered its earnings per share by 6.6% per year over the last five years. So one might expect an above average P/E ratio. But earnings per share are down 2.5% per year over the last three years.

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. 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.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.