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Is Republic Bancorp Inc’s (NASDAQ:RBCA.A) PE Ratio A Signal To Buy For Investors?

Lacy Summers

Republic Bancorp Inc (NASDAQ:RBCA.A) is trading with a trailing P/E of 16.6x, which is lower than the industry average of 16.6x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. Today, 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 Republic Bancorp

Breaking down the P/E ratio

NasdaqGS:RBCA.A PE PEG Gauge Dec 21st 17
NasdaqGS:RBCA.A PE PEG Gauge Dec 21st 17

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

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

RBCA.A Price-Earnings Ratio = $40.38 ÷ $2.428 = 16.6x

The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful 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 RBCA.A, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. RBCA.A’s P/E of 16.6x is lower than its industry peers (16.6x), which implies that each dollar of RBCA.A’s earnings is being undervalued by investors. As such, our analysis shows that RBCA.A represents an under-priced stock.

Assumptions to be aware of

While our conclusion might prompt you to buy RBCA.A immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to RBCA.A, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with RBCA.A, 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 RBCA.A to are fairly valued by the market. If this is violated, RBCA.A’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

Are you a shareholder? If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of RBCA.A to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above.

Are you a potential investor? If you are considering investing in RBCA.A, basing your decision on the PE metric at one point in time is certainly not sufficient. I recommend you do additional analysis by looking at its intrinsic valuation and using other relative valuation ratios like PEG or EV/EBITDA.

PE is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Republic Bancorp for a more in-depth analysis of the stock to help you make a well-informed investment decision. Since we know a limitation of PE is it doesn’t properly account for growth, you can use our free platform to see my list of stocks with a high growth potential and see if their PE is still reasonable.


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.