Is WASKO Spólka Akcyjna (WSE:WAS) A Buy At Its Current PE Ratio?
WASKO Spólka Akcyjna (WSE:WAS) is trading with a trailing P/E of 20.6x, which is lower than the industry average of 24.7x. While this makes WAS appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, 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 WASKO Spólka Akcyjna
Breaking down the P/E ratio
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 WAS
Price-Earnings Ratio = Price per share ÷ Earnings per share
WAS Price-Earnings Ratio = PLN2.14 ÷ PLN0.104 = 20.6x
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 preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to WAS, such as capital structure and profitability. A common peer group is companies that exist in the same industry, which is what I use. WAS’s P/E of 20.6x is lower than its industry peers (24.7x), which implies that each dollar of WAS’s earnings is being undervalued by investors. As such, our analysis shows that WAS represents an under-priced stock.
A few caveats
While our conclusion might prompt you to buy WAS immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to WAS. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with WAS, 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 WAS to are fairly valued by the market. If this does not hold, there is a possibility that WAS’s P/E is lower because our peer group is 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 undervaluation could signal a good buying opportunity to increase your exposure to WAS. 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:
Financial Health: Is WAS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Past Track Record: Has WAS 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 WAS’s historicals for more clarity.
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.
