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What Is bpost's (EBR:BPOST) P/E Ratio After Its Share Price Tanked?

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Simply Wall St
·4 min read
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To the annoyance of some shareholders, bpost (EBR:BPOST) shares are down a considerable 33% in the last month. That drop has capped off a tough year for shareholders, with the share price down 32% in that time.

All else being equal, a share price drop should make a stock more attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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 bpost

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

We can tell from its P/E ratio of 7.69 that sentiment around bpost isn't particularly high. The image below shows that bpost has a lower P/E than the average (11.0) P/E for companies in the logistics industry.

ENXTBR:BPOST Price Estimation Relative to Market, March 19th 2020
ENXTBR:BPOST Price Estimation Relative to Market, March 19th 2020

Its relatively low P/E ratio indicates that bpost 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. 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 even if the current P/E is low, it will increase over time if the share price stays flat. 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 42% last year. And EPS is down 12% a year, over the last 5 years. This might lead to muted expectations.

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

The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

How Does bpost's Debt Impact Its P/E Ratio?

Net debt is 28% of bpost's market cap. While it's worth keeping this in mind, it isn't a worry.

The Bottom Line On bpost's P/E Ratio

bpost trades on a P/E ratio of 7.7, which is below the BE market average of 11.7. With only modest debt, it's likely the lack of EPS growth at least partially explains the pessimism implied by the P/E ratio. What can be absolutely certain is that the market has become more pessimistic about bpost over the last month, with the P/E ratio falling from 11.4 back then to 7.7 today. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.

Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

Of course you might be able to find a better stock than bpost. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.

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. Thank you for reading.