Unfortunately for some shareholders, the Sport Lisboa e Benfica - Futebol SAD (ELI:SLBEN) share price has dived 38% in the last thirty days. Looking back further, the stock is up 5.7% in the last year.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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.

View our latest analysis for Sport Lisboa e Benfica - Futebol SAD

Does Sport Lisboa e Benfica - Futebol SAD Have A Relatively High Or Low P/E For Its Industry?

Sport Lisboa e Benfica - Futebol SAD's P/E of 2.18 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (27.2) for companies in the entertainment industry is higher than Sport Lisboa e Benfica - Futebol SAD's P/E.

Sport Lisboa e Benfica - Futebol SAD's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. 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. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.

It's nice to see that Sport Lisboa e Benfica - Futebol SAD grew EPS by a stonking 43% in the last year. And its annual EPS growth rate over 5 years is 16%. I'd therefore be a little surprised if its P/E ratio was not relatively high.

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.