Here's What Public Joint-Stock Company Moscow United Electric Grid Company's (MCX:MSRS) P/E Ratio Is Telling Us
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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll look at Public Joint-Stock Company Moscow United Electric Grid Company's (MCX:MSRS) P/E ratio and reflect on what it tells us about the company's share price. Moscow United Electric Grid has a P/E ratio of 5.15, based on the last twelve months. That corresponds to an earnings yield of approximately 19%.
Check out our latest analysis for Moscow United Electric Grid
How Do You Calculate Moscow United Electric Grid's P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Moscow United Electric Grid:
P/E of 5.15 = RUB0.70 ÷ RUB0.14 (Based on the trailing twelve months to December 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each RUB1 of company earnings. All else being equal, it's better to pay a low price -- but as Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'
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.
In the last year, Moscow United Electric Grid grew EPS like Taylor Swift grew her fan base back in 2010; the 237% gain was both fast and well deserved. Unfortunately, earnings per share are down 19% a year, over 5 years.
How Does Moscow United Electric Grid's P/E Ratio Compare To Its Peers?
One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. We can see in the image below that the average P/E (7.3) for companies in the electric utilities industry is higher than Moscow United Electric Grid's P/E.
Moscow United Electric Grid's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. 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.
Moscow United Electric Grid's Balance Sheet
Net debt totals a substantial 250% of Moscow United Electric Grid's market cap. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.
The Bottom Line On Moscow United Electric Grid's P/E Ratio
Moscow United Electric Grid has a P/E of 5.2. That's below the average in the RU market, which is 7.4. The company has a meaningful amount of debt on the balance sheet, but that should not eclipse the solid earnings growth. If the company can continue to grow earnings, then the current P/E may be unjustifiably low.
Investors have an opportunity when market expectations about a stock are wrong. 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 visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
You might be able to find a better buy than Moscow United Electric Grid. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).
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.
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. Thank you for reading.
