The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We’ll show how you can use Graphic Packaging Holding Company’s (NYSE:GPK) P/E ratio to inform your assessment of the investment opportunity. Graphic Packaging Holding has a price to earnings ratio of 21.72, based on the last twelve months. That corresponds to an earnings yield of approximately 4.6%.
View our latest analysis for Graphic Packaging Holding
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Graphic Packaging Holding:
P/E of 21.72 = $16.14 ÷ $0.74 (Based on the trailing twelve months to September 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each $1 of company 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 Graphic Packaging Holding’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. As you can see below, Graphic Packaging Holding has a higher P/E than the average company (18.6) in the packaging industry.
Graphic Packaging Holding’s P/E tells us that market participants think the company will perform better than its industry peers, going forward. The market is optimistic about the future, but that doesn’t guarantee future growth. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
How Growth Rates Impact P/E Ratios
When earnings fall, the ‘E’ decreases, over time. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.
Graphic Packaging Holding’s earnings per share fell by 34% in the last twelve months. But EPS is up 21% over the last 5 years. And over the longer term (3 years) earnings per share have decreased 1.3% annually. This could justify a low P/E.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The ‘Price’ in P/E reflects the market capitalization of the company. That means it doesn’t take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
While growth expenditure doesn’t always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Graphic Packaging Holding’s Balance Sheet
Graphic Packaging Holding has net debt worth 60% of its market capitalization. This is enough debt that you’d have to make some adjustments before using the P/E ratio to compare it to a company with net cash.
The Bottom Line On Graphic Packaging Holding’s P/E Ratio
Graphic Packaging Holding has a P/E of 21.7. That’s higher than the average in its market, which is 18.7. With significant debt and no EPS growth last year, shareholders are betting on an improvement in earnings from the company.
Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth — so investors can make money when fast growth is not fully appreciated. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
But note: Graphic Packaging Holding may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
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.
The easiest way to discover new investment ideas
Save hours of research when discovering your next investment with Simply Wall St. Looking for companies potentially undervalued based on their future cash flows? Or maybe you’re looking for sustainable dividend payers or high growth potential stocks. Customise your search to easily find new investment opportunities that match your investment goals. And the best thing about it? It’s FREE. Click here to learn more."graphic" - Google News
January 11, 2020 at 06:44AM
https://ift.tt/37OXcNA
Should You Be Tempted To Sell Graphic Packaging Holding Company (NYSE:GPK) Because Of Its P/E Ratio? - Simply Wall St
"graphic" - Google News
https://ift.tt/32EYpEQ
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
No comments:
Post a Comment