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Is It Time To Buy Pier 1 Imports Inc (NYSE:PIR) Based Off Its PE Ratio?

Pier 1 Imports Inc (NYSE:PIR) is currently trading at a trailing P/E of 11.3x, which is lower than the industry average of 18.9x. 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 break down what the P/E ratio is, how to interpret it and what to watch out for. Check out our latest analysis for Pier 1 Imports

Breaking down the P/E ratio

NYSE:PIR PE PEG Gauge Feb 2nd 18
NYSE:PIR PE PEG Gauge Feb 2nd 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 PIR

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

PIR Price-Earnings Ratio = $3.27 ÷ $0.288 = 11.3x

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 preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to PIR, such as capital structure and profitability. A common peer group is companies that exist in the same industry, which is what I use. PIR’s P/E of 11.3x is lower than its industry peers (18.9x), which implies that each dollar of PIR’s earnings is being undervalued by investors. Therefore, according to this analysis, PIR is an under-priced stock.

Assumptions to be aware of

However, before you rush out to buy PIR, 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 PIR, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with PIR, 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 PIR to are fairly valued by the market. If this does not hold true, PIR’s lower P/E ratio may be because firms in our peer group are 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.

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