The Österreichische Staatsdruckerei Holding (VIE:OESD) share price has done well in the last month, posting a gain of 31%. Longer term shareholders are no doubt thankful for the recovery in the share price, since it's pretty much flat for the year, even after the recent pop.
Assuming no other changes, a sharply higher share price makes a stock less 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). The implication here is that deep value investors might steer clear when expectations of a company are too high. 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). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
How Does Österreichische Staatsdruckerei Holding's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 40.86 that there is some investor optimism about Österreichische Staatsdruckerei Holding. The image below shows that Österreichische Staatsdruckerei Holding has a higher P/E than the average (20.3) P/E for companies in the electronic industry.
Österreichische Staatsdruckerei Holding's P/E tells us that market participants think the company will perform better than its industry peers, going forward. Shareholders are clearly optimistic, but the future is always uncertain. So investors should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. That means even if the current P/E is low, it will increase over time if the share price stays flat. Then, a higher P/E might scare off shareholders, pushing the share price down.
Österreichische Staatsdruckerei Holding's earnings made like a rocket, taking off 78% last year. Unfortunately, earnings per share are down 5.2% a year, over 3 years.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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.
Is Debt Impacting Österreichische Staatsdruckerei Holding's P/E?
The extra options and safety that comes with Österreichische Staatsdruckerei Holding's €4.7m net cash position means that it deserves a higher P/E than it would if it had a lot of net debt.
The Bottom Line On Österreichische Staatsdruckerei Holding's P/E Ratio
Österreichische Staatsdruckerei Holding trades on a P/E ratio of 40.9, which is above its market average of 14.7. The excess cash it carries is the gravy on top its fast EPS growth. To us, this is the sort of company that we would expect to carry an above average price tag (relative to earnings). What we know for sure is that investors have become much more excited about Österreichische Staatsdruckerei Holding recently, since they have pushed its P/E ratio from 31.3 to 40.9 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.
Investors have an opportunity when market expectations about a stock are wrong. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course you might be able to find a better stock than Österreichische Staatsdruckerei Holding. 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 email@example.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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