The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll look at Piraeus Port Authority S.A.'s (ATH:PPA) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Piraeus Port Authority has a P/E ratio of 10.86. That means that at current prices, buyers pay €10.86 for every €1 in trailing yearly profits.

Check out our latest analysis for Piraeus Port Authority

How Do You Calculate A P/E Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)

Or for Piraeus Port Authority:

P/E of 10.86 = €15.400 ÷ €1.418 (Based on the trailing twelve months to December 2019.)

(Note: the above calculation results may not be precise due to rounding.)

Is A High P/E Ratio Good?

A higher P/E ratio means that buyers have to pay a higher price for each €1 the company has earned over the last year. 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 Does Piraeus Port Authority's P/E Ratio Compare To Its Peers?

One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. You can see in the image below that the average P/E (11.2) for companies in the infrastructure industry is roughly the same as Piraeus Port Authority's P/E.

Its P/E ratio suggests that Piraeus Port Authority shareholders think that in the future it will perform about the same as other companies in its industry classification. The company could surprise by performing better than average, in the future. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

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.

Notably, Piraeus Port Authority grew EPS by a whopping 27% in the last year. And it has bolstered its earnings per share by 39% per year over the last five years. So we'd generally expect it to have a relatively high P/E ratio.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. 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.