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 CS Communication & Systemes SA's (EPA:SX) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, CS Communication & Systemes's P/E ratio is 16.63. In other words, at today's prices, investors are paying €16.63 for every €1 in prior year profit.
See our latest analysis for CS Communication & Systemes
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for CS Communication & Systemes:
P/E of 16.63 = €5.28 ÷ €0.32 (Based on the trailing twelve months to December 2018.)
Is A High Price-to-Earnings 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 CS Communication & Systemes'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 CS Communication & Systemes has a P/E ratio that is fairly close for the average for the it industry, which is 17.4.
Its P/E ratio suggests that CS Communication & Systemes shareholders think that in the future it will perform about the same as other companies in its industry classification. The company could surprise by performing better than average, in the future. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
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. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
It's great to see that CS Communication & Systemes grew EPS by 15% in the last year. And its annual EPS growth rate over 5 years is 95%. With that performance, you might expect an above average P/E ratio.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. 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.