Advertisement
U.S. markets close in 3 hours 40 minutes
  • S&P 500

    5,251.52
    +3.03 (+0.06%)
     
  • Dow 30

    39,784.12
    +24.04 (+0.06%)
     
  • Nasdaq

    16,386.46
    -13.06 (-0.08%)
     
  • Russell 2000

    2,134.38
    +20.03 (+0.95%)
     
  • Crude Oil

    82.50
    +1.15 (+1.41%)
     
  • Gold

    2,234.90
    +22.20 (+1.00%)
     
  • Silver

    24.86
    +0.11 (+0.46%)
     
  • EUR/USD

    1.0800
    -0.0029 (-0.27%)
     
  • 10-Yr Bond

    4.1850
    -0.0110 (-0.26%)
     
  • GBP/USD

    1.2634
    -0.0004 (-0.03%)
     
  • USD/JPY

    151.2790
    +0.0330 (+0.02%)
     
  • Bitcoin USD

    70,904.29
    +2,304.03 (+3.36%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,964.58
    +32.60 (+0.41%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Should You Be Tempted To Buy TSR Inc (NASDAQ:TSRI) Because Of Its PE Ratio?

TSR Inc (NASDAQ:TSRI) trades with a trailing P/E of 21.2x, which is lower than the industry average of 24.8x. While TSRI might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. See our latest analysis for TSR

What you need to know about the P/E ratio

NasdaqCM:TSRI PE PEG Gauge Jun 11th 18
NasdaqCM:TSRI PE PEG Gauge Jun 11th 18

P/E is a popular ratio used for relative valuation. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for TSRI

Price-Earnings Ratio = Price per share ÷ Earnings per share

TSRI Price-Earnings Ratio = $4.45 ÷ $0.21 = 21.2x

The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as TSRI, such as size and country of operation. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. TSRI’s P/E of 21.2x is lower than its industry peers (24.8x), which implies that each dollar of TSRI’s earnings is being undervalued by investors. Therefore, according to this analysis, TSRI is an under-priced stock.

Assumptions to watch out for

However, before you rush out to buy TSRI, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to TSRI, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with TSRI, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing TSRI to are fairly valued by the market. If this does not hold, there is a possibility that TSRI’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to TSRI. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Is TSRI’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  2. Past Track Record: Has TSRI been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of TSRI’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

Advertisement