What Is WSFS Financial's (NASDAQ:WSFS) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the WSFS Financial (NASDAQ:WSFS) share price has dived 42% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 38% in that time.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
Check out our latest analysis for WSFS Financial
Does WSFS Financial Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 7.75 that sentiment around WSFS Financial isn't particularly high. The image below shows that WSFS Financial has a lower P/E than the average (10.4) P/E for companies in the mortgage industry.
WSFS Financial's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with WSFS Financial, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. That means unless the share price increases, the P/E will reduce in a few years. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
WSFS Financial's earnings per share fell by 29% in the last twelve months. But over the longer term (5 years) earnings per share have increased by 8.9%.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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).
Is Debt Impacting WSFS Financial's P/E?
Since WSFS Financial holds net cash of US$81m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On WSFS Financial's P/E Ratio
WSFS Financial's P/E is 7.8 which is below average (12.2) in the US market. The recent drop in earnings per share would make investors cautious, but the net cash position means the company has time to improve: if so, the low P/E could be an opportunity. What can be absolutely certain is that the market has become more pessimistic about WSFS Financial over the last month, with the P/E ratio falling from 13.3 back then to 7.8 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course you might be able to find a better stock than WSFS Financial. 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.
