The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we'll show how Iktinos Hellas S.A. Greek Marble Industry Technical and Touristic Company's (ATH:IKTIN) P/E ratio could help you assess the value on offer. What is Iktinos Hellas Greek Marble Industry Technical and Touristic's P/E ratio? Well, based on the last twelve months it is 14.57. That corresponds to an earnings yield of approximately 6.9%.
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 Iktinos Hellas Greek Marble Industry Technical and Touristic:
P/E of 14.57 = €1.03 ÷ €0.07 (Based on the year to June 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Does Iktinos Hellas Greek Marble Industry Technical and Touristic's P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. You can see in the image below that the average P/E (9.0) for companies in the metals and mining industry is lower than Iktinos Hellas Greek Marble Industry Technical and Touristic's P/E.
That means that the market expects Iktinos Hellas Greek Marble Industry Technical and Touristic will outperform other companies in its industry. 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.
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Iktinos Hellas Greek Marble Industry Technical and Touristic's earnings per share fell by 51% in the last twelve months. But EPS is up 20% over the last 5 years.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Is Debt Impacting Iktinos Hellas Greek Marble Industry Technical and Touristic's P/E?
Iktinos Hellas Greek Marble Industry Technical and Touristic has net debt equal to 28% of its market cap. While that's enough to warrant consideration, it doesn't really concern us.
The Bottom Line On Iktinos Hellas Greek Marble Industry Technical and Touristic's P/E Ratio
Iktinos Hellas Greek Marble Industry Technical and Touristic has a P/E of 14.6. That's below the average in the GR market, which is 16.9. Since it only carries a modest debt load, it's likely the low expectations implied by the P/E ratio arise from the lack of recent earnings growth.
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. 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.
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 firstname.lastname@example.org. 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.