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A Sliding Share Price Has Us Looking At Motor Oil (Hellas) Corinth Refineries S.A.'s (ATH:MOH) P/E Ratio

Simply Wall St

Unfortunately for some shareholders, the Motor Oil (Hellas) Corinth Refineries (ATH:MOH) share price has dived 36% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 43% drop over twelve months.

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.

See our latest analysis for Motor Oil (Hellas) Corinth Refineries

Does Motor Oil (Hellas) Corinth Refineries Have A Relatively High Or Low P/E For Its Industry?

Motor Oil (Hellas) Corinth Refineries has a P/E ratio of 6.61. The image below shows that Motor Oil (Hellas) Corinth Refineries has a P/E ratio that is roughly in line with the oil and gas industry average (6.6).

ATSE:MOH Price Estimation Relative to Market, March 13th 2020

That indicates that the market expects Motor Oil (Hellas) Corinth Refineries will perform roughly in line with other companies in its industry. So if Motor Oil (Hellas) Corinth Refineries actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

When earnings fall, the 'E' decreases, over time. 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.

Motor Oil (Hellas) Corinth Refineries saw earnings per share decrease by 41% last year. And over the longer term (3 years) earnings per share have decreased 2.9% annually. This growth rate might warrant a low P/E ratio.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

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.

So What Does Motor Oil (Hellas) Corinth Refineries's Balance Sheet Tell Us?

Motor Oil (Hellas) Corinth Refineries has net debt worth 22% of its market capitalization. This could bring some additional risk, and reduce the number of investment options for management; worth remembering if you compare its P/E to businesses without debt.

The Bottom Line On Motor Oil (Hellas) Corinth Refineries's P/E Ratio

Motor Oil (Hellas) Corinth Refineries trades on a P/E ratio of 6.6, which is below the GR market average of 12.9. The debt levels are not a major concern, but the lack of EPS growth is likely weighing on sentiment. Given Motor Oil (Hellas) Corinth Refineries's P/E ratio has declined from 10.3 to 6.6 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 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 visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

You might be able to find a better buy than Motor Oil (Hellas) Corinth Refineries. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you spot an error that warrants correction, please contact the editor at 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.