U.S. markets closed
  • S&P Futures

    3,811.00
    -10.25 (-0.27%)
     
  • Dow Futures

    30,935.00
    -64.00 (-0.21%)
     
  • Nasdaq Futures

    11,652.50
    -38.50 (-0.33%)
     
  • Russell 2000 Futures

    1,717.30
    -4.10 (-0.24%)
     
  • Crude Oil

    109.89
    +0.11 (+0.10%)
     
  • Gold

    1,820.80
    +3.30 (+0.18%)
     
  • Silver

    20.67
    +0.00 (+0.01%)
     
  • EUR/USD

    1.0458
    +0.0014 (+0.14%)
     
  • 10-Yr Bond

    3.0930
    -0.1130 (-3.52%)
     
  • Vix

    28.16
    -0.20 (-0.71%)
     
  • GBP/USD

    1.2141
    +0.0019 (+0.15%)
     
  • USD/JPY

    136.5700
    +0.0250 (+0.02%)
     
  • BTC-USD

    20,057.52
    -254.05 (-1.25%)
     
  • CMC Crypto 200

    430.70
    -8.97 (-2.04%)
     
  • FTSE 100

    7,312.32
    -11.09 (-0.15%)
     
  • Nikkei 225

    26,553.66
    -250.94 (-0.94%)
     

Do You Like UFP Technologies, Inc. (NASDAQ:UFPT) At This P/E Ratio?

  • Oops!
    Something went wrong.
    Please try again later.
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll look at UFP Technologies, Inc.'s (NASDAQ:UFPT) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, UFP Technologies has a P/E ratio of 18.86. That is equivalent to an earnings yield of about 5.3%.

See our latest analysis for UFP Technologies

How Do You Calculate A P/E Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)

Or for UFP Technologies:

P/E of 18.86 = $46.81 ÷ $2.48 (Based on the trailing twelve months to September 2019.)

Is A High P/E Ratio Good?

The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.

How Does UFP Technologies's P/E Ratio Compare To Its Peers?

One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. The image below shows that UFP Technologies has a P/E ratio that is roughly in line with the packaging industry average (19.0).

NasdaqCM:UFPT Price Estimation Relative to Market, December 17th 2019
NasdaqCM:UFPT Price Estimation Relative to Market, December 17th 2019

UFP Technologies's P/E tells us that market participants think its prospects are roughly in line with its industry. So if UFP Technologies actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.

UFP Technologies increased earnings per share by a whopping 44% last year. And earnings per share have improved by 13% annually, over the last five years. I'd therefore be a little surprised if its P/E ratio was not relatively high.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).

How Does UFP Technologies's Debt Impact Its P/E Ratio?

UFP Technologies's net debt is 1.2% of its market cap. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.

The Bottom Line On UFP Technologies's P/E Ratio

UFP Technologies has a P/E of 18.9. That's around the same as the average in the US market, which is 18.7. With only modest debt levels, and strong earnings growth, the market seems to doubt that the growth can be maintained.

Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free report on the analyst consensus forecasts could help you make a master move on this stock.

Of course you might be able to find a better stock than UFP Technologies. So you may wish to see this free collection of other companies that have grown earnings strongly.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.