Advertisement
U.S. markets open in 5 hours 23 minutes
  • S&P Futures

    5,305.00
    -3.25 (-0.06%)
     
  • Dow Futures

    40,107.00
    -37.00 (-0.09%)
     
  • Nasdaq Futures

    18,504.00
    +0.25 (+0.00%)
     
  • Russell 2000 Futures

    2,135.00
    -3.40 (-0.16%)
     
  • Crude Oil

    81.77
    +0.42 (+0.52%)
     
  • Gold

    2,214.30
    +1.60 (+0.07%)
     
  • Silver

    24.62
    -0.13 (-0.53%)
     
  • EUR/USD

    1.0797
    -0.0033 (-0.30%)
     
  • 10-Yr Bond

    4.1960
    0.0000 (0.00%)
     
  • Vix

    12.95
    +0.17 (+1.33%)
     
  • GBP/USD

    1.2612
    -0.0026 (-0.20%)
     
  • USD/JPY

    151.4200
    +0.1740 (+0.12%)
     
  • Bitcoin USD

    70,388.69
    +544.24 (+0.78%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,931.98
    0.00 (0.00%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Do You Know What Titon Holdings Plc’s (LON:TON) P/E Ratio Means?

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Titon Holdings Plc’s (LON:TON) P/E ratio could help you assess the value on offer. Based on the last twelve months, Titon Holdings’s P/E ratio is 8.48. In other words, at today’s prices, investors are paying £8.48 for every £1 in prior year profit.

View our latest analysis for Titon Holdings

How Do I Calculate A Price To Earnings Ratio?

The formula for P/E is:

Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)

Or for Titon Holdings:

P/E of 8.48 = £1.63 ÷ £0.19 (Based on the year to September 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio implies that investors pay a higher price for the earning power of the business. 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

Earnings growth rates have a big influence on P/E ratios. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means even if the current P/E is high, it will reduce over time if the share price stays flat. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Titon Holdings increased earnings per share by an impressive 16% over the last twelve months. And it has bolstered its earnings per share by 25% per year over the last five years. With that performance, you might expect an above average P/E ratio.

How Does Titon Holdings’s P/E Ratio Compare To Its Peers?

We can get an indication of market expectations by looking at the P/E ratio. If you look at the image below, you can see Titon Holdings has a lower P/E than the average (14.1) in the building industry classification.

AIM:TON Price Estimation Relative to Market, March 1st 2019
AIM:TON Price Estimation Relative to Market, March 1st 2019

Its relatively low P/E ratio indicates that Titon Holdings shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Titon Holdings, 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.

Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits

It’s important to note that the P/E ratio considers the market capitalization, not the enterprise value. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

Titon Holdings’s Balance Sheet

Titon Holdings has net cash of UK£3.4m. That should lead to a higher P/E than if it did have debt, because its strong balance sheets gives it more options.

The Bottom Line On Titon Holdings’s P/E Ratio

Titon Holdings’s P/E is 8.5 which is below average (16.2) in the GB market. It grew its EPS nicely over the last year, and the healthy balance sheet implies there is more potential for growth. The relatively low P/E ratio implies the market is pessimistic.

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.’ 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.

Of course you might be able to find a better stock than Titon Holdings. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.

Advertisement