Does EPR Properties’s (NYSE:EPR) PE Ratio Signal A Buying Opportunity?
EPR Properties (NYSE:EPR) is trading with a trailing P/E of 17.1x, which is lower than the industry average of 19.6x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. View our latest analysis for EPR Properties
Breaking down the P/E ratio
The P/E ratio is one of many ratios used in relative valuation. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for EPR
Price-Earnings Ratio = Price per share ÷ Earnings per share
EPR Price-Earnings Ratio = $57.71 ÷ $3.376 = 17.1x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to EPR, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. At 17.1x, EPR’s P/E is lower than its industry peers (19.6x). This implies that investors are undervaluing each dollar of EPR’s earnings. As such, our analysis shows that EPR represents an under-priced stock.
A few caveats
However, before you rush out to buy EPR, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to EPR, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with EPR, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing EPR to are fairly valued by the market. If this is violated, EPR’s P/E may be lower than its peers as they are actually overvalued by investors.
To help readers see pass 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.
