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How Does Pangaea Logistics Solutions's (NASDAQ:PANL) P/E Compare To Its Industry, After The Share Price Drop?

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To the annoyance of some shareholders, Pangaea Logistics Solutions (NASDAQ:PANL) shares are down a considerable 31% in the last month. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 42% drop over twelve months.

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. 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 implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

Check out our latest analysis for Pangaea Logistics Solutions

Does Pangaea Logistics Solutions Have A Relatively High Or Low P/E For Its Industry?

Pangaea Logistics Solutions's P/E is 6.89. The image below shows that Pangaea Logistics Solutions has a P/E ratio that is roughly in line with the shipping industry average (7.4).

NasdaqCM:PANL Price Estimation Relative to Market April 3rd 2020
NasdaqCM:PANL Price Estimation Relative to Market April 3rd 2020

That indicates that the market expects Pangaea Logistics Solutions will perform roughly in line with other companies in its industry. So if Pangaea Logistics Solutions actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. 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. Then, a lower P/E should attract more buyers, pushing the share price up.

Pangaea Logistics Solutions's earnings per share fell by 35% in the last twelve months. But over the longer term (3 years), earnings per share have increased by 8.7%.

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

Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

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.

Is Debt Impacting Pangaea Logistics Solutions's P/E?

Pangaea Logistics Solutions's net debt is 67% of its market cap. This is enough debt that you'd have to make some adjustments before using the P/E ratio to compare it to a company with net cash.

The Bottom Line On Pangaea Logistics Solutions's P/E Ratio

Pangaea Logistics Solutions has a P/E of 6.9. That's below the average in the US market, which is 12.5. The P/E reflects market pessimism that probably arises from the lack of recent EPS growth, paired with significant leverage. What can be absolutely certain is that the market has become more pessimistic about Pangaea Logistics Solutions over the last month, with the P/E ratio falling from 10.0 back then to 6.9 today. 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. 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.

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.