How Does Jardine Cycle & Carriage's (SGX:C07) P/E Compare To Its Industry, After The Share Price Drop?
Unfortunately for some shareholders, the Jardine Cycle & Carriage (SGX:C07) share price has dived 37% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 42% in that time.
All else being equal, a share price drop should make a stock more attractive to potential investors. 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. The implication here is that long term investors have an opportunity when expectations of a company are too low. Perhaps the simplest way to get a read on investors' expectations of a business 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 Jardine Cycle & Carriage
Does Jardine Cycle & Carriage Have A Relatively High Or Low P/E For Its Industry?
Jardine Cycle & Carriage's P/E is 5.81. The image below shows that Jardine Cycle & Carriage has a P/E ratio that is roughly in line with the retail distributors industry average (6.1).
Jardine Cycle & Carriage's P/E tells us that market participants think its prospects are roughly in line with its industry. So if Jardine Cycle & Carriage actually outperforms its peers going forward, that should be a positive for the share price. I would further inform my view by checking insider buying and selling., among other things.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Jardine Cycle & Carriage's earnings made like a rocket, taking off 110% last year. Having said that, the average EPS growth over the last three years wasn't so good, coming in at 7.9%.
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. In theory, a company can lower its future P/E ratio by using cash or debt to invest in 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.
How Does Jardine Cycle & Carriage's Debt Impact Its P/E Ratio?
Jardine Cycle & Carriage's net debt is considerable, at 114% of its market cap. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you're comparing it to other stocks.
The Bottom Line On Jardine Cycle & Carriage's P/E Ratio
Jardine Cycle & Carriage trades on a P/E ratio of 5.8, which is below the SG market average of 10.4. The company may have significant debt, but EPS growth was good last year. The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not continue. Given Jardine Cycle & Carriage's P/E ratio has declined from 9.2 to 5.8 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
Investors should be looking to buy stocks that the market is wrong about. 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.
Of course you might be able to find a better stock than Jardine Cycle & Carriage. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
