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TNS energo Voronezh (MCX:VRSB) shares have continued recent momentum with a 44% gain in the last month alone. That's tops off a massive gain of 217% in the last year.
All else being equal, a sharp share price increase should make a stock less 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 deep value investors might steer clear when expectations of a company are too high. 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 TNS energo Voronezh
How Does TNS energo Voronezh's P/E Ratio Compare To Its Peers?
TNS energo Voronezh's P/E of 76.36 indicates some degree of optimism towards the stock. As you can see below, TNS energo Voronezh has a much higher P/E than the average company (4.9) in the electric utilities industry.
Its relatively high P/E ratio indicates that TNS energo Voronezh 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 investors should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. Then, a higher P/E might scare off shareholders, pushing the share price down.
TNS energo Voronezh saw earnings per share decrease by 70% last year. But EPS is up 7.7% over the last 5 years. And it has shrunk its earnings per share by 38% per year over the last three years. This growth rate might warrant a low P/E ratio.
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. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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).
How Does TNS energo Voronezh's Debt Impact Its P/E Ratio?
Net debt is 25% of TNS energo Voronezh's market cap. You'd want to be aware of this fact, but it doesn't bother us.