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How Does Glacier Bancorp's (NASDAQ:GBCI) P/E Compare To Its Industry, After The Share Price Drop?

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To the annoyance of some shareholders, Glacier Bancorp (NASDAQ:GBCI) shares are down a considerable 39% in the last month. That drop has capped off a tough year for shareholders, with the share price down 35% in that time.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. 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 Glacier Bancorp

Does Glacier Bancorp Have A Relatively High Or Low P/E For Its Industry?

Glacier Bancorp's P/E of 11.20 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (9.7) for companies in the banks industry is lower than Glacier Bancorp's P/E.

NasdaqGS:GBCI Price Estimation Relative to Market, March 13th 2020
NasdaqGS:GBCI Price Estimation Relative to Market, March 13th 2020

That means that the market expects Glacier Bancorp will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So investors should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Glacier Bancorp's earnings per share grew by -9.7% in the last twelve months. And its annual EPS growth rate over 5 years is 9.6%.

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

It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. 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.

So What Does Glacier Bancorp's Balance Sheet Tell Us?

Glacier Bancorp's net debt is 19% of its market cap. That's enough debt to impact the P/E ratio a little; so keep it in mind if you're comparing it to companies without debt.

The Verdict On Glacier Bancorp's P/E Ratio

Glacier Bancorp has a P/E of 11.2. That's below the average in the US market, which is 13.3. EPS grew over the last twelve months, and debt levels are quite reasonable. If growth is sustainable over the long term, then the current P/E ratio may be a sign of good value. Given Glacier Bancorp's P/E ratio has declined from 18.5 to 11.2 in the last month, we know for sure that the market is significantly less confident about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.

Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.

You might be able to find a better buy than Glacier Bancorp. 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).

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.