In This Article:
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll look at Endurance Technologies Limited's (NSE:ENDURANCE) P/E ratio and reflect on what it tells us about the company's share price. Endurance Technologies has a P/E ratio of 35.14, based on the last twelve months. That corresponds to an earnings yield of approximately 2.8%.
View our latest analysis for Endurance Technologies
How Do I Calculate Endurance Technologies's Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Endurance Technologies:
P/E of 35.14 = ₹1155.7 ÷ ₹32.89 (Based on the year to December 2018.)
Is A High Price-to-Earnings 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
Probably the most important factor in determining what P/E a company trades on is the earnings growth. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. 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.
Endurance Technologies increased earnings per share by a whopping 29% last year. And earnings per share have improved by 18% annually, over the last five years. So we'd generally expect it to have a relatively high P/E ratio.
How Does Endurance Technologies'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, Endurance Technologies has a higher P/E than the average company (16.2) in the auto components industry.
That means that the market expects Endurance Technologies will outperform other companies in its industry. 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.
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. Thus, the metric does not reflect cash or debt held by the company. 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.