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Is Insteel Industries Inc (NASDAQ:IIIN) A Sell At Its Current PE Ratio?

Brandy Kinsey

Insteel Industries Inc (NASDAQ:IIIN) trades with a trailing P/E of 24.2x, which is higher than the industry average of 23.4x. While IIIN might seem like a stock to avoid or sell if you own it, 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 Insteel Industries

Breaking down the P/E ratio

NasdaqGS:IIIN PE PEG Gauge May 11th 18

A common ratio used for relative valuation is the P/E ratio. 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 IIIN

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

IIIN Price-Earnings Ratio = $31.35 ÷ $1.295 = 24.2x

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 IIIN, such as company lifetime and products sold. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. Since IIIN’s P/E of 24.2x is higher than its industry peers (23.4x), it means that investors are paying more than they should for each dollar of IIIN’s earnings. As such, our analysis shows that IIIN represents an over-priced stock.

Assumptions to be aware of

While our conclusion might prompt you to sell your IIIN shares immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to IIIN, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with IIIN, 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 IIIN to are fairly valued by the market. If this does not hold true, IIIN’s lower P/E ratio may be because firms in our peer group are overvalued by the market.

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 rebalance your portfolio and reduce your holdings in IIIN. 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 IIIN’s future growth? Take a look at our free research report of analyst consensus for IIIN’s outlook.
  2. Past Track Record: Has IIIN 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 IIIN’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.