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Is It Time To Buy ALJ Regional Holdings Inc (NASDAQ:ALJJ) Based Off Its PE Ratio?

ALJ Regional Holdings Inc (NASDAQ:ALJJ) is trading with a trailing P/E of 8.3x, which is lower than the industry average of 24.4x. While this makes ALJJ appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. View our latest analysis for ALJ Regional Holdings

What you need to know about the P/E ratio

NasdaqGM:ALJJ PE PEG Gauge Apr 19th 18
NasdaqGM:ALJJ PE PEG Gauge Apr 19th 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 ALJJ

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

ALJJ Price-Earnings Ratio = $2.25 ÷ $0.273 = 8.3x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to ALJJ, such as company lifetime and products sold. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. ALJJ’s P/E of 8.3x is lower than its industry peers (24.4x), which implies that each dollar of ALJJ’s earnings is being undervalued by investors. As such, our analysis shows that ALJJ represents an under-priced stock.

A few caveats

While our conclusion might prompt you to buy ALJJ immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to ALJJ, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with ALJJ, 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 ALJJ to are fairly valued by the market. If this does not hold true, ALJJ’s lower P/E ratio may be because firms in our peer group are 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 ALJJ. 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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Is ALJJ’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 ALJJ 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 ALJJ’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.

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