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What Is Sterling Bancorp's (NYSE:STL) P/E Ratio After Its Share Price Tanked?

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Unfortunately for some shareholders, the Sterling Bancorp (NYSE:STL) share price has dived 34% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 31% drop over twelve months.

All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

Check out our latest analysis for Sterling Bancorp

Does Sterling Bancorp Have A Relatively High Or Low P/E For Its Industry?

We can tell from its P/E ratio of 6.58 that sentiment around Sterling Bancorp isn't particularly high. We can see in the image below that the average P/E (10.5) for companies in the banks industry is higher than Sterling Bancorp's P/E.

NYSE:STL Price Estimation Relative to Market, March 10th 2020
NYSE:STL Price Estimation Relative to Market, March 10th 2020

Its relatively low P/E ratio indicates that Sterling Bancorp shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. When earnings grow, the 'E' increases, over time. That means unless the share price increases, the P/E will reduce in a few years. And as that P/E ratio drops, the company will look cheap, unless its share price increases.

Sterling Bancorp's earnings per share grew by -4.0% in the last twelve months. And earnings per share have improved by 23% annually, 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. That means it doesn't take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

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 Sterling Bancorp's Balance Sheet Tell Us?

Sterling Bancorp has net debt worth a very significant 102% of its market capitalization. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you're comparing it to other stocks.

The Verdict On Sterling Bancorp's P/E Ratio

Sterling Bancorp has a P/E of 6.6. That's below the average in the US market, which is 15.1. The meaningful debt load is probably contributing to low expectations, even though it has improved earnings recently. What can be absolutely certain is that the market has become more pessimistic about Sterling Bancorp over the last month, with the P/E ratio falling from 10.0 back then to 6.6 today. 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. 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.

Of course you might be able to find a better stock than Sterling Bancorp. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.