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Should You Be Tempted To Sell Votum SA. (WSE:VOT) Because Of Its PE Ratio?

Dane Simmons

Votum SA. (WSE:VOT) is currently trading at a trailing P/E of 32.2x, which is higher than the industry average of 11.9x. While VOT might seem like a stock to avoid or sell if you own it, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. Today, 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 Votum

Demystifying the P/E ratio

WSE:VOT PE PEG Gauge May 15th 18

P/E is often used for relative valuation since earnings power is a chief driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for VOT

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

VOT Price-Earnings Ratio = PLN9.74 ÷ PLN0.303 = 32.2x

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 preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to VOT, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. At 32.2x, VOT’s P/E is higher than its industry peers (11.9x). This implies that investors are overvaluing each dollar of VOT’s earnings. As such, our analysis shows that VOT represents an over-priced stock.

Assumptions to be aware of

However, before you rush out to sell your VOT shares, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to VOT. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with VOT, 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 VOT to are fairly valued by the market. If this does not hold, there is a possibility that VOT’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Since you may have already conducted your due diligence on VOT, the overvaluation of the stock may mean it is a good time to reduce your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. 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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Is VOT’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 VOT 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 VOT’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.