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Is It Time To Buy Integrated Media Technology Limited (ASX:ITL) Based Off Its PE Ratio?

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Integrated Media Technology Limited (ASX:ITL) trades with a trailing P/E of 8x, which is lower than the industry average of 15.5x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. 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 Integrated Media Technology

Breaking down the P/E ratio

ASX:ITL PE PEG Gauge Mar 15th 18
ASX:ITL PE PEG Gauge Mar 15th 18

The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. 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 ITL

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

ITL Price-Earnings Ratio = A$5.11 ÷ A$0.64 = 8x

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 ITL, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. ITL’s P/E of 8x is lower than its industry peers (15.5x), which implies that each dollar of ITL’s earnings is being undervalued by investors. As such, our analysis shows that ITL represents an under-priced stock.

A few caveats

While our conclusion might prompt you to buy ITL immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to ITL, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with ITL, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing ITL to are fairly valued by the market. If this does not hold, there is a possibility that ITL’s P/E is lower because our peer group is overvalued by the market.


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.