What Does Bigbloc Construction Limited’s (NSE:BIGBLOC) P/E Ratio Tell You?
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll show how you can use Bigbloc Construction Limited’s (NSE:BIGBLOC) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Bigbloc Construction’s P/E ratio is 21.1. That corresponds to an earnings yield of approximately 4.7%.
See our latest analysis for Bigbloc Construction
How Do I Calculate A Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Bigbloc Construction:
P/E of 21.1 = ₹46.9 ÷ ₹2.22 (Based on the year to September 2018.)
Is A High Price-to-Earnings 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 Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the ‘E’ will be higher. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.
Bigbloc Construction maintained roughly steady earnings over the last twelve months.
How Does Bigbloc Construction’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Bigbloc Construction has a higher P/E than the average (19.5) P/E for companies in the basic materials industry.
Its relatively high P/E ratio indicates that Bigbloc Construction 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.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
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.
Bigbloc Construction’s Balance Sheet
Bigbloc Construction’s net debt is 47% of its market cap. This is a reasonably significant level of debt — all else being equal you’d expect a much lower P/E than if it had net cash.
The Verdict On Bigbloc Construction’s P/E Ratio
Bigbloc Construction has a P/E of 21.1. That’s higher than the average in the IN market, which is 16.8. With a bit of debt, but a lack of recent growth, it’s safe to say the market is expecting improved profit performance from the company, in the next few years.
When the market is wrong about a stock, it gives savvy investors an opportunity. People often underestimate remarkable growth — so investors can make money when fast growth is not fully appreciated. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
