In This Article:
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll look at Adani Ports and Special Economic Zone Limited’s (NSE:ADANIPORTS) P/E ratio and reflect on what it tells us about the company’s share price. Adani Ports and Special Economic Zone has a P/E ratio of 22.56, based on the last twelve months. In other words, at today’s prices, investors are paying ₹22.56 for every ₹1 in prior year profit.
View our latest analysis for Adani Ports and Special Economic Zone
How Do I Calculate Adani Ports and Special Economic Zone’s Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Adani Ports and Special Economic Zone:
P/E of 22.56 = ₹350.55 ÷ ₹15.54 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the ‘E’ increases, over time. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.
Adani Ports and Special Economic Zone saw earnings per share decrease by 15% last year. But over the longer term (5 years) earnings per share have increased by 17%.
How Does Adani Ports and Special Economic Zone’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Adani Ports and Special Economic Zone has a higher P/E than the average (19.9) P/E for companies in the infrastructure industry.
That means that the market expects Adani Ports and Special Economic Zone will outperform other companies in its industry. Clearly the market expects growth, but it isn’t guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
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.
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.