A Sliding Share Price Has Us Looking At Hyster-Yale Materials Handling, Inc.'s (NYSE:HY) P/E Ratio
To the annoyance of some shareholders, Hyster-Yale Materials Handling (NYSE:HY) shares are down a considerable 30% in the last month. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 38% 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. One way to gauge market expectations of a stock 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 Hyster-Yale Materials Handling
How Does Hyster-Yale Materials Handling's P/E Ratio Compare To Its Peers?
Hyster-Yale Materials Handling has a P/E ratio of 18.04. As you can see below Hyster-Yale Materials Handling has a P/E ratio that is fairly close for the average for the machinery industry, which is 17.2.
Its P/E ratio suggests that Hyster-Yale Materials Handling shareholders think that in the future it will perform about the same as other companies in its industry classification. The company could surprise by performing better than average, in the future. I would further inform my view by checking insider buying and selling., among other things.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
Hyster-Yale Materials Handling's earnings per share grew by -2.5% in the last twelve months. But earnings per share are down 20% per year over the last five years.
Remember: P/E Ratios Don't Consider The Balance Sheet
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.
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.
Hyster-Yale Materials Handling's Balance Sheet
Hyster-Yale Materials Handling's net debt equates to 31% of its market capitalization. While that's enough to warrant consideration, it doesn't really concern us.
The Verdict On Hyster-Yale Materials Handling's P/E Ratio
Hyster-Yale Materials Handling has a P/E of 18.0. That's higher than the average in its market, which is 14.7. With modest debt relative to its size, and modest earnings growth, the market is likely expecting sustained long-term growth, if not a near-term improvement. What can be absolutely certain is that the market has become significantly less optimistic about Hyster-Yale Materials Handling over the last month, with the P/E ratio falling from 25.8 back then to 18.0 today. 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.
Investors should be looking to buy stocks that the market is wrong about. 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 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 Hyster-Yale Materials Handling. 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.
