Do You Know What Landmark Bancorp, Inc.'s (NASDAQ:LARK) P/E Ratio Means?
Landmark Bancorp (NASDAQ:LARK) shares have retraced a considerable in the last month. But there's still good reason for shareholders to be content; the stock has gained 9.2% in the last 90 days. The stock has been solid, longer term, gaining 11% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business 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.
See our latest analysis for Landmark Bancorp
How Does Landmark Bancorp's P/E Ratio Compare To Its Peers?
Landmark Bancorp's P/E of 10.68 indicates relatively low sentiment towards the stock. The image below shows that Landmark Bancorp has a lower P/E than the average (12.6) P/E for companies in the banks industry.
Its relatively low P/E ratio indicates that Landmark Bancorp shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Landmark Bancorp, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. And in that case, the P/E ratio itself will drop rather quickly. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Landmark Bancorp's earnings per share were pretty steady over the last year. But over the longer term (5 years) earnings per share have increased by 4.1%.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.
Landmark Bancorp's Balance Sheet
Net debt is 25% of Landmark Bancorp's market cap. While that's enough to warrant consideration, it doesn't really concern us.
The Verdict On Landmark Bancorp's P/E Ratio
Landmark Bancorp's P/E is 10.7 which is below average (18.5) in the US market. EPS grew over the last twelve months, and debt levels are quite reasonable. If growth is sustainable over the long term, then the current P/E ratio may be a sign of good value. Given Landmark Bancorp's P/E ratio has declined from 10.7 to 10.7 in the last month, we know for sure that the market is less confident about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.
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. Although we don't have analyst forecasts you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course you might be able to find a better stock than Landmark Bancorp. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
