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# Is It Time To Sell Shiloh Industries Inc (NASDAQ:SHLO) Based Off Its PE Ratio?

This analysis is intended to introduce important early concepts to people who are starting to invest and want to better understand how you can grow your money by investing in Shiloh Industries Inc (NASDAQ:SHLO).

Shiloh Industries Inc (NASDAQ:SHLO) is trading with a trailing P/E of 33.9x, which is higher than the industry average of 14.7x. Although some investors may jump to the conclusion that you should avoid the stock or sell if you own it, 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.

### Breaking down the P/E ratio

The P/E ratio is one of many ratios used in relative valuation. By comparing a stockâ€™s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the companyâ€™s earnings.

P/E Calculation for SHLO

Price-Earnings Ratio = Price per share Ã· Earnings per share

SHLO Price-Earnings Ratio = \$9.25 Ã· \$0.273 = 33.9x

The P/E ratio isnâ€™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 stockâ€™s P/E ratio to the average of companies that have similar attributes to SHLO, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. At 33.9x, SHLOâ€™s P/E is higher than its industry peers (14.7x). This implies that investors are overvaluing each dollar of SHLOâ€™s earnings. As such, our analysis shows that SHLO represents an over-priced stock.

### Assumptions to watch out for

However, before you rush out to sell your SHLO 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 SHLO. If this isnâ€™t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with SHLO, then its P/E would naturally be lower since investors would reward its peersâ€™ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing SHLO to are fairly valued by the market. If this does not hold, there is a possibility that SHLOâ€™s P/E is lower because our peer group is overvalued by the market.

### What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to rebalance your portfolio and reduce your holdings in SHLO. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned 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. Future Outlook: What are well-informed industry analysts predicting for SHLOâ€™s future growth? Take a look at our free research report of analyst consensus for SHLOâ€™s outlook.
2. Past Track Record: Has SHLO 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 SHLOâ€™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.