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What Is Télévision Française 1 Société anonyme's (EPA:TFI) P/E Ratio After Its Share Price Tanked?

To the annoyance of some shareholders, Télévision Française 1 Société anonyme (EPA:TFI) shares are down a considerable 30% in the last month. That drop has capped off a tough year for shareholders, with the share price down 42% in that time.

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.

View our latest analysis for Télévision Française 1 Société anonyme

Does Télévision Française 1 Société anonyme Have A Relatively High Or Low P/E For Its Industry?

Télévision Française 1 Société anonyme's P/E of 6.63 indicates relatively low sentiment towards the stock. If you look at the image below, you can see Télévision Française 1 Société anonyme has a lower P/E than the average (8.3) in the media industry classification.

ENXTPA:TFI Price Estimation Relative to Market April 2nd 2020
ENXTPA:TFI Price Estimation Relative to Market April 2nd 2020

This suggests that market participants think Télévision Française 1 Société anonyme will underperform other companies in its industry. Since the market seems unimpressed with Télévision Française 1 Société anonyme, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. 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.

It's great to see that Télévision Française 1 Société anonyme grew EPS by 21% in the last year. And it has bolstered its earnings per share by 9.3% per year over the last five years. So one might expect an above average 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. Thus, the metric does not reflect cash or debt held by the company. 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.

How Does Télévision Française 1 Société anonyme's Debt Impact Its P/E Ratio?

Télévision Française 1 Société anonyme's net debt is 12% of its market cap. That's enough debt to impact the P/E ratio a little; so keep it in mind if you're comparing it to companies without debt.

The Verdict On Télévision Française 1 Société anonyme's P/E Ratio

Télévision Française 1 Société anonyme has a P/E of 6.6. That's below the average in the FR market, which is 13.2. The company hasn't stretched its balance sheet, and earnings growth was good last year. The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not continue. What can be absolutely certain is that the market has become more pessimistic about Télévision Française 1 Société anonyme over the last month, with the P/E ratio falling from 9.5 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. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. 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.

But note: Télévision Française 1 Société anonyme may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

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.