To the annoyance of some shareholders, Adecco Group (VTX:ADEN) shares are down a considerable 39% in the last month. That drop has capped off a tough year for shareholders, with the share price down 33% in that time.

All else being equal, a share price drop should make a stock more attractive to potential investors. 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 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.

See our latest analysis for Adecco Group

How Does Adecco Group's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 7.54 that sentiment around Adecco Group isn't particularly high. If you look at the image below, you can see Adecco Group has a lower P/E than the average (14.3) in the professional services industry classification.

Its relatively low P/E ratio indicates that Adecco Group shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or 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.

In the last year, Adecco Group grew EPS like Taylor Swift grew her fan base back in 2010; the 62% gain was both fast and well deserved. Having said that, the average EPS growth over the last three years wasn't so good, coming in at 1.8%.

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. That means it doesn't take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).