Unfortunately for some shareholders, the Massimo Zanetti Beverage Group (BIT:MZB) share price has dived 34% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 40% 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). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
How Does Massimo Zanetti Beverage Group's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 8.30 that sentiment around Massimo Zanetti Beverage Group isn't particularly high. We can see in the image below that the average P/E (10.6) for companies in the food industry is higher than Massimo Zanetti Beverage Group's P/E.
Massimo Zanetti Beverage Group's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with Massimo Zanetti Beverage Group, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Massimo Zanetti Beverage Group's earnings per share fell by 24% in the last twelve months. And it has shrunk its earnings per share by 5.0% per year over the last five years. This could justify a pessimistic P/E.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. That means it doesn't take debt or cash into account. 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.
Massimo Zanetti Beverage Group's Balance Sheet
Net debt totals a substantial 166% of Massimo Zanetti Beverage Group's market cap. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.
The Verdict On Massimo Zanetti Beverage Group's P/E Ratio
Massimo Zanetti Beverage Group's P/E is 8.3 which is below average (12.9) in the IT market. Given meaningful debt, and a lack of recent growth, the market looks to be extrapolating this recent performance; reflecting low expectations for the future. What can be absolutely certain is that the market has become more pessimistic about Massimo Zanetti Beverage Group over the last month, with the P/E ratio falling from 12.6 back then to 8.3 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
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.
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.
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