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Is It Time To Sell NN Inc (NASDAQ:NNBR) Based Off Its PE Ratio?

NN Inc (NASDAQ:NNBR) is currently trading at a trailing P/E of 23.4x, which is higher than the industry average of 23.2x. While NNBR 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. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. Check out our latest analysis for NN

Breaking down the Price-Earnings ratio

NasdaqGS:NNBR PE PEG Gauge May 10th 18
NasdaqGS:NNBR PE PEG Gauge May 10th 18

The P/E ratio is one of many ratios used in relative valuation. 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 NNBR

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

NNBR Price-Earnings Ratio = $21.65 ÷ $0.925 = 23.4x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to NNBR, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. NNBR’s P/E of 23.4x is higher than its industry peers (23.2x), which implies that each dollar of NNBR’s earnings is being overvalued by investors. Therefore, according to this analysis, NNBR is an over-priced stock.

Assumptions to be aware of

Before you jump to the conclusion that NNBR should be banished from your portfolio, it is important to realise that our conclusion rests on two assertions. The first is that our “similar companies” are actually similar to NNBR, or else the difference in P/E might be a result of other factors. For example, if you compared lower risk firms with NNBR, 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 NNBR to are fairly valued by the market. If this does not hold true, NNBR’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 overvaluation could signal a potential selling opportunity to reduce your exposure to NNBR. 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. Future Outlook: What are well-informed industry analysts predicting for NNBR’s future growth? Take a look at our free research report of analyst consensus for NNBR’s outlook.

  2. Past Track Record: Has NNBR 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 NNBR’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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