A Sliding Share Price Has Us Looking At CoreLogic, Inc.'s (NYSE:CLGX) P/E Ratio
To the annoyance of some shareholders, CoreLogic (NYSE:CLGX) shares are down a considerable 37% in the last month. The recent drop has obliterated the annual return, with the share price now down 21% over that longer period.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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.
View our latest analysis for CoreLogic
Does CoreLogic Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 36.08 that there is some investor optimism about CoreLogic. The image below shows that CoreLogic has a higher P/E than the average (24.8) P/E for companies in the it industry.
CoreLogic's P/E tells us that market participants think the company will perform better than its industry peers, going forward. The market is optimistic about the future, but that doesn't guarantee future growth. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.
CoreLogic's earnings per share fell by 45% in the last twelve months. And over the longer term (5 years) earnings per share have decreased 3.3% annually. This growth rate might warrant a below average P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. 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.
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.
So What Does CoreLogic's Balance Sheet Tell Us?
CoreLogic has net debt worth 67% of its market capitalization. This is enough debt that you'd have to make some adjustments before using the P/E ratio to compare it to a company with net cash.
The Bottom Line On CoreLogic's P/E Ratio
CoreLogic trades on a P/E ratio of 36.1, which is above its market average of 12.9. With meaningful debt and a lack of recent earnings growth, the market has high expectations that the business will earn more in the future. Given CoreLogic's P/E ratio has declined from 57.4 to 36.1 in the last month, we know for sure that the market is significantly less confident about the business today, than it was back then. For those who don't like to trade against momentum, that could be a warning sign, but a contrarian investor might want to take a closer look.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
You might be able to find a better buy than CoreLogic. 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.
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