What Does Weyco Group Inc’s (NASDAQ:WEYS) PE Ratio Tell You?
This analysis is intended to introduce important early concepts to people who are starting to invest and want to start learning about core concepts of fundamental analysis on practical examples from today’s market.
Weyco Group Inc (NASDAQ:WEYS) is currently trading at a trailing P/E of 20.3x, which is lower than the industry average of 22.4x. While WEYS might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. 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 Weyco Group
Demystifying the P/E ratio
P/E is a popular ratio used for relative valuation. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for WEYS
Price-Earnings Ratio = Price per share ÷ Earnings per share
WEYS Price-Earnings Ratio = $35.18 ÷ $1.734 = 20.3x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful 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 WEYS, such as company lifetime and products sold. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. At 20.3, WEYS’s P/E is lower than its industry peers (22.4). This implies that investors are undervaluing each dollar of WEYS’s earnings. This multiple is a median of profitable companies of 18 Retail Distributors companies in US including Xinhua Winshare Publishing and Media, Inchcape and Inchcape. You can think of it like this: the market is suggesting that WEYS is a weaker business than the average comparable company.
Assumptions to watch out for
However, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to WEYS. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with WEYS, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing WEYS to are fairly valued by the market. If this does not hold true, WEYS’s lower P/E ratio may be because firms in our peer group are overvalued by the market.
What this means for you:
Since you may have already conducted your due diligence on WEYS, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined 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 urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for WEYS’s future growth? Take a look at our free research report of analyst consensus for WEYS’s outlook.
Past Track Record: Has WEYS 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 WEYS’s historicals for more clarity.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
