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Should You Sell CB Financial Services Inc (NASDAQ:CBFV) At This PE Ratio?

This analysis is intended to introduce important early concepts to people who are starting to invest and want to begin learning the link between CB Financial Services Inc (NASDAQ:CBFV)’s fundamentals and stock market performance.

CB Financial Services Inc (NASDAQ:CBFV) trades with a trailing P/E of 22.2x, which is higher than the industry average of 17x. Although some investors may jump to the conclusion that you should avoid the stock or sell if you own it, understanding the assumptions behind the P/E ratio might change your mind. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for. See our latest analysis for CB Financial Services

What you need to know about the P/E ratio

NasdaqGM:CBFV PE PEG Gauge June 21st 18
NasdaqGM:CBFV PE PEG Gauge June 21st 18

The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. 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 CBFV

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

CBFV Price-Earnings Ratio = $35.9 ÷ $1.614 = 22.2x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to CBFV, such as company lifetime and products sold. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. Since CBFV’s P/E of 22.2x is higher than its industry peers (17x), it means that investors are paying more than they should for each dollar of CBFV’s earnings. Therefore, according to this analysis, CBFV is an over-priced stock.

A few caveats

While our conclusion might prompt you to sell your CBFV shares immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to CBFV, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with CBFV, 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 CBFV to are fairly valued by the market. If this does not hold, there is a possibility that CBFV’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to rebalance your portfolio and reduce your holdings in CBFV. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for CBFV’s future growth? Take a look at our free research report of analyst consensus for CBFV’s outlook.

  2. Past Track Record: Has CBFV been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CBFV’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


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.

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