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Do You Like bpost SA/NV (EBR:BPOST) At This P/E Ratio?

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Simply Wall St
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The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we'll show how bpost SA/NV's (EBR:BPOST) P/E ratio could help you assess the value on offer. Looking at earnings over the last twelve months, bpost has a P/E ratio of 7.64. That means that at current prices, buyers pay €7.64 for every €1 in trailing yearly profits.

See our latest analysis for bpost

How Do I Calculate A Price To Earnings Ratio?

The formula for P/E is:

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

Or for bpost:

P/E of 7.64 = €9.36 ÷ €1.22 (Based on the trailing twelve months to June 2019.)

Is A High P/E Ratio Good?

The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.

How Does bpost'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. The image below shows that bpost has a lower P/E than the average (15.1) P/E for companies in the logistics industry.

ENXTBR:BPOST Price Estimation Relative to Market, September 13th 2019
ENXTBR:BPOST Price Estimation Relative to Market, September 13th 2019

bpost's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with bpost, it's quite possible it could surprise on the upside. 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

If earnings fall then in the future the 'E' will be lower. That means unless the share price falls, the P/E will increase in a few years. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

bpost saw earnings per share decrease by 6.8% last year. And over the longer term (5 years) earnings per share have decreased 3.7% annually. So you wouldn't expect a very high P/E.

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

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.

So What Does bpost's Balance Sheet Tell Us?

Net debt totals 13% of bpost's market cap. It would probably deserve a higher P/E ratio if it was net cash, since it would have more options for growth.

The Verdict On bpost's P/E Ratio

bpost trades on a P/E ratio of 7.6, which is below the BE market average of 15.6. With only modest debt, it's likely the lack of EPS growth at least partially explains the pessimism implied by the P/E ratio.

Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free report on the analyst consensus forecasts could help you make a master move on this stock.

You might be able to find a better buy than bpost. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.