Looking into the current session, Nike Inc. (NYSE: NKE) is trading at $96.94, after a 4.31% drop. Over the past month, the stock fell by 1.67%, but over the past year, it actually spiked by 13.49%. With questionable short-term performance like this, and great long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio.
Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently below from its 52 week high by 8.22%.
The P/E ratio is used by long-term shareholders to assess the company’s market performance against aggregate market data, historical earnings, and the industry at large. A lower P/E indicates that shareholders do not expect the stock to perform better in the future, and that the company is probably undervalued. It shows that shareholders are less than willing to pay a high share price, because they do not expect the company to exhibit growth, in terms of future earnings.
Depending on the particular phase of a business cycle, some industries will perform better than others.
Compared to the aggregate P/E ratio of 12.48 in the Footwear & Accessories industry, Nike Inc. has a higher P/E ratio of 37.42. Shareholders might be inclined to think that Nike Inc. might perform better than its industry group. It’s also possible that the stock is overvalued.
P/E ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors may not be able to attain key insights from trailing earnings.
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