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Should You Be Tempted To Sell First Financial Corporation (NASDAQ:THFF) Because Of Its PE Ratio?

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Joel Foster
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First Financial Corporation (NASDAQ:THFF) is currently trading at a trailing P/E of 18.4x, which is higher than the industry average of 17.4x. While this makes THFF appear like a stock to avoid or sell if you own it, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for. Check out our latest analysis for First Financial

Demystifying the P/E ratio

NasdaqGS:THFF PE PEG Gauge Apr 24th 18
NasdaqGS:THFF PE PEG Gauge Apr 24th 18

The P/E ratio is one of many ratios used in 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 THFF

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

THFF Price-Earnings Ratio = $43.95 ÷ $2.383 = 18.4x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as THFF, 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. Since THFF’s P/E of 18.4x is higher than its industry peers (17.4x), it means that investors are paying more than they should for each dollar of THFF’s earnings. As such, our analysis shows that THFF represents an over-priced stock.

A few caveats

While our conclusion might prompt you to sell your THFF shares immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to THFF. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with THFF, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing THFF to are fairly valued by the market. If this is violated, THFF’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

You may have already conducted fundamental analysis on the stock as a shareholder, so its current overvaluation could signal a potential selling opportunity to reduce your exposure to THFF. 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. Future Outlook: What are well-informed industry analysts predicting for THFF’s future growth? Take a look at our free research report of analyst consensus for THFF’s outlook.

  2. Past Track Record: Has THFF 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 THFF’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.