Those holding Helix Energy Solutions Group (NYSE:HLX) shares must be pleased that the share price has rebounded 118% in the last thirty days. But unfortunately, the stock is still down by 74% over a quarter. But that will do little to salve the savage burn caused by the 72% share price decline, over the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). 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.
How Does Helix Energy Solutions Group's P/E Ratio Compare To Its Peers?
Helix Energy Solutions Group's P/E of 7.68 indicates relatively low sentiment towards the stock. The image below shows that Helix Energy Solutions Group has a lower P/E than the average (11.6) P/E for companies in the energy services industry.
Its relatively low P/E ratio indicates that Helix Energy Solutions Group shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Helix Energy Solutions Group, 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
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the 'E' increases, over time. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
It's nice to see that Helix Energy Solutions Group grew EPS by a stonking 30% in the last year. In contrast, EPS has decreased by 29%, annually, over 5 years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
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.
How Does Helix Energy Solutions Group's Debt Impact Its P/E Ratio?
Helix Energy Solutions Group has net debt worth 72% 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 Bottom Line On Helix Energy Solutions Group's P/E Ratio
Helix Energy Solutions Group's P/E is 7.7 which is below average (14.4) in the US market. The company may have significant debt, but EPS growth was good last year. If the company can continue to grow earnings, then the current P/E may be unjustifiably low. What we know for sure is that investors are becoming less uncomfortable about Helix Energy Solutions Group's prospects, since they have pushed its P/E ratio from 3.5 to 7.7 over the last month. If you like to buy stocks that could be turnaround opportunities, then this one might be a candidate; but if you're more sensitive to price, then you may feel the opportunity has passed.
Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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