U.S. markets close in 1 hour 36 minutes
  • S&P 500

    4,134.36
    -39.06 (-0.94%)
     
  • Dow 30

    33,791.61
    -345.70 (-1.01%)
     
  • Nasdaq

    13,814.22
    -136.00 (-0.97%)
     
  • Russell 2000

    2,231.82
    -7.80 (-0.35%)
     
  • Crude Oil

    61.17
    -0.18 (-0.29%)
     
  • Gold

    1,780.10
    -13.00 (-0.73%)
     
  • Silver

    26.07
    -0.50 (-1.88%)
     
  • EUR/USD

    1.2003
    -0.0036 (-0.30%)
     
  • 10-Yr Bond

    1.5540
    -0.0100 (-0.64%)
     
  • GBP/USD

    1.3828
    -0.0104 (-0.75%)
     
  • USD/JPY

    108.1200
    +0.0770 (+0.07%)
     
  • BTC-USD

    53,179.59
    -2,557.79 (-4.59%)
     
  • CMC Crypto 200

    1,243.92
    +0.86 (+0.07%)
     
  • FTSE 100

    6,938.24
    +42.95 (+0.62%)
     
  • Nikkei 225

    29,188.17
    +679.62 (+2.38%)
     

A Rising Share Price Has Us Looking Closely At ProSiebenSat.1 Media SE's (ETR:PSM) P/E Ratio

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·4 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Those holding ProSiebenSat.1 Media (ETR:PSM) shares must be pleased that the share price has rebounded 37% in the last thirty days. But unfortunately, the stock is still down by 13% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 29% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. 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.

View our latest analysis for ProSiebenSat.1 Media

Does ProSiebenSat.1 Media Have A Relatively High Or Low P/E For Its Industry?

ProSiebenSat.1 Media's P/E of 7.54 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (26.7) for companies in the media industry is higher than ProSiebenSat.1 Media's P/E.

XTRA:PSM Price Estimation Relative to Market May 19th 2020
XTRA:PSM Price Estimation Relative to Market May 19th 2020

ProSiebenSat.1 Media's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with ProSiebenSat.1 Media, 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

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

ProSiebenSat.1 Media shrunk earnings per share by 3.6% last year. And over the longer term (5 years) earnings per share have decreased 4.4% annually. So we might expect a relatively low P/E.

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

Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

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.

How Does ProSiebenSat.1 Media's Debt Impact Its P/E Ratio?

ProSiebenSat.1 Media has net debt worth 89% of its market capitalization. If you want to compare its P/E ratio to other companies, you should absolutely keep in mind it has significant borrowings.

The Verdict On ProSiebenSat.1 Media's P/E Ratio

ProSiebenSat.1 Media's P/E is 7.5 which is below average (18.1) in the DE market. Given meaningful debt, and a lack of recent growth, the market looks to be extrapolating this recent performance; reflecting low expectations for the future. What we know for sure is that investors are becoming less uncomfortable about ProSiebenSat.1 Media's prospects, since they have pushed its P/E ratio from 5.5 to 7.5 over the last month. For those who like to invest in turnarounds, that might mean it's time to put the stock on a watchlist, or research it. But others might consider the opportunity to have passed.

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 visual report on analyst forecasts could hold the key to an excellent investment decision.

But note: ProSiebenSat.1 Media may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email 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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.