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This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). To keep it practical, we'll show how Shreyas Shipping and Logistics Limited's (NSE:SHREYAS) P/E ratio could help you assess the value on offer. What is Shreyas Shipping and Logistics's P/E ratio? Well, based on the last twelve months it is 10.33. That is equivalent to an earnings yield of about 9.7%.
See our latest analysis for Shreyas Shipping and Logistics
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Shreyas Shipping and Logistics:
P/E of 10.33 = ₹140.1 ÷ ₹13.56 (Based on the year to March 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each ₹1 the company has earned over the last year. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. That means unless the share price falls, the P/E will increase in a few years. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
Shreyas Shipping and Logistics saw earnings per share decrease by 68% last year. And EPS is down 15% a year, over the last 3 years. This growth rate might warrant a low P/E ratio.
How Does Shreyas Shipping and Logistics's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. As you can see below Shreyas Shipping and Logistics has a P/E ratio that is fairly close for the average for the shipping industry, which is 9.8.
Its P/E ratio suggests that Shreyas Shipping and Logistics shareholders think that in the future it will perform about the same as other companies in its industry classification. If the company has better than average prospects, then the market might be underestimating it. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
The 'Price' in P/E reflects the market capitalization of the company. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.