Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    +1.76 (+2.16%)
     
  • Gold

    2,254.80
    +42.10 (+1.90%)
     
  • Silver

    25.10
    +0.35 (+1.41%)
     
  • EUR/USD

    1.0792
    -0.0037 (-0.35%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2621
    -0.0017 (-0.13%)
     
  • USD/JPY

    151.3750
    +0.1290 (+0.09%)
     
  • Bitcoin USD

    70,793.44
    +1,793.76 (+2.60%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Is Lena Lighting SA (WSE:LEN) A Sell At Its Current PE Ratio?

The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want to better understand how you can grow your money by investing in Lena Lighting SA (WSE:LEN).

Lena Lighting SA (WSE:LEN) is currently trading at a trailing P/E of 10.2x, which is higher than the industry average of 10.6x. While this makes LEN appear like a stock to avoid or sell if you own it, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for. View out our latest analysis for Lena Lighting

Breaking down the P/E ratio

WSE:LEN PE PEG Gauge June 26th 18
WSE:LEN PE PEG Gauge June 26th 18

The P/E ratio is one of many ratios used in 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 LEN

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

LEN Price-Earnings Ratio = PLN3.52 ÷ PLN0.345 = 10.2x

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. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to LEN, such as capital structure and profitability. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. At 10.2x, LEN’s P/E is lower than its industry peers (10.6x). This implies that investors are undervaluing each dollar of LEN’s earnings. As such, our analysis shows that LEN represents an under-priced stock.

A few caveats

While our conclusion might prompt you to sell your LEN shares immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to LEN. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with LEN, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing LEN to are fairly valued by the market. If this does not hold, there is a possibility that LEN’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Since you may have already conducted your due diligence on LEN, 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 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 LEN’s future growth? Take a look at our free research report of analyst consensus for LEN’s outlook.

  2. Past Track Record: Has LEN 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 LEN’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.

Advertisement