What Does Allgemeine Gold- und Silberscheideanstalt AG's (MUN:AGS) P/E Ratio Tell You?
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll look at Allgemeine Gold- und Silberscheideanstalt AG's (MUN:AGS) P/E ratio and reflect on what it tells us about the company's share price. Allgemeine Gold- und Silberscheideanstalt has a P/E ratio of 28.2, based on the last twelve months. That corresponds to an earnings yield of approximately 3.5%.
See our latest analysis for Allgemeine Gold- und Silberscheideanstalt
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Allgemeine Gold- und Silberscheideanstalt:
P/E of 28.2 = €98.5 ÷ €3.49 (Based on the trailing twelve months to December 2018.)
Is A High Price-to-Earnings Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
How Does Allgemeine Gold- und Silberscheideanstalt's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. As you can see below, Allgemeine Gold- und Silberscheideanstalt has a higher P/E than the average company (9.6) in the metals and mining industry.
Its relatively high P/E ratio indicates that Allgemeine Gold- und Silberscheideanstalt shareholders think it will perform better than other companies in its industry classification. 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.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.
Allgemeine Gold- und Silberscheideanstalt shrunk earnings per share by 20% over the last year. And over the longer term (5 years) earnings per share have decreased 14% annually. This growth rate might warrant a below average P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
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 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.
Allgemeine Gold- und Silberscheideanstalt's Balance Sheet
Since Allgemeine Gold- und Silberscheideanstalt holds net cash of €2.8m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On Allgemeine Gold- und Silberscheideanstalt's P/E Ratio
Allgemeine Gold- und Silberscheideanstalt trades on a P/E ratio of 28.2, which is above its market average of 20.1. The recent drop in earnings per share would make some investors cautious, but the healthy balance sheet means the company retains potential for future growth. If fails to eventuate, the current high P/E could prove to be temporary, as the share price falls.
When the market is wrong about a stock, it gives savvy investors an opportunity. 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.' We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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.
