Those holding Oswal Greentech (NSE:BINDALAGRO) shares must be pleased that the share price has rebounded 43% in the last thirty days. But unfortunately, the stock is still down by 14% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 40% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
Check out our latest analysis for Oswal Greentech
Does Oswal Greentech Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 5.11 that sentiment around Oswal Greentech isn't particularly high. If you look at the image below, you can see Oswal Greentech has a lower P/E than the average (16.5) in the real estate industry classification.
Its relatively low P/E ratio indicates that Oswal Greentech shareholders think it will struggle to do as well as other companies in its industry classification. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the 'E' increases, over time. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.
Notably, Oswal Greentech grew EPS by a whopping 30% in the last year. And its annual EPS growth rate over 3 years is 16%. I'd therefore be a little surprised if its P/E ratio was not relatively high. In contrast, EPS has decreased by 2.0%, annually, over 5 years.
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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.