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Does Turkcell Iletisim Hizmetleri AS.’s (NYSE:TKC) PE Ratio Warrant A Buy?

Lawrence Carr

Turkcell Iletisim Hizmetleri AS. (NYSE:TKC) is trading with a trailing P/E of 14.1x, which is lower than the industry average of 16.5x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. View our latest analysis for Turkcell Iletisim Hizmetleri

Breaking down the Price-Earnings ratio

NYSE:TKC PE PEG Gauge May 23rd 18

P/E is a popular ratio used for relative valuation. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for TKC

Price-Earnings Ratio = Price per share ÷ Earnings per share

TKC Price-Earnings Ratio = TRY13.01 ÷ TRY0.922 = 14.1x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to TKC, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. At 14.1x, TKC’s P/E is lower than its industry peers (16.5x). This implies that investors are undervaluing each dollar of TKC’s earnings. As such, our analysis shows that TKC represents an under-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to buy TKC immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to TKC, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with TKC, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing TKC to are fairly valued by the market. If this is violated, TKC’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of TKC to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for TKC’s future growth? Take a look at our free research report of analyst consensus for TKC’s outlook.
  2. Past Track Record: Has TKC been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of TKC’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.