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To the annoyance of some shareholders, Seacoast Banking Corporation of Florida (NASDAQ:SBCF) shares are down a considerable 30% in the last month. That drop has capped off a tough year for shareholders, with the share price down 32% in that time.
All else being equal, a share price drop should make a stock more 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 long term investors have an opportunity when expectations of a company are too low. 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). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
Does Seacoast Banking Corporation of Florida Have A Relatively High Or Low P/E For Its Industry?
Seacoast Banking Corporation of Florida has a P/E ratio of 9.53. As you can see below Seacoast Banking Corporation of Florida has a P/E ratio that is fairly close for the average for the banks industry, which is 8.9.
That indicates that the market expects Seacoast Banking Corporation of Florida will perform roughly in line with other companies in its industry. If the company has better than average prospects, then the market might be underestimating it. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
It's nice to see that Seacoast Banking Corporation of Florida grew EPS by a stonking 37% in the last year. And its annual EPS growth rate over 5 years is 56%. With that performance, I would expect it to have an above average P/E ratio.
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. That means it doesn't take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Is Debt Impacting Seacoast Banking Corporation of Florida's P/E?
Seacoast Banking Corporation of Florida has net debt equal to 37% of its market cap. While that's enough to warrant consideration, it doesn't really concern us.
The Verdict On Seacoast Banking Corporation of Florida's P/E Ratio
Seacoast Banking Corporation of Florida's P/E is 9.5 which is below average (13.1) in the US market. The EPS growth last year was strong, and debt levels are quite reasonable. The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not continue. Given Seacoast Banking Corporation of Florida's P/E ratio has declined from 13.6 to 9.5 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
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 visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
But note: Seacoast Banking Corporation of Florida 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).
If you spot an error that warrants correction, please contact the editor at email@example.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. Simply Wall St has no position in the stocks mentioned.
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