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What Is Bet-At-Home.com's (ETR:ACX) P/E Ratio After Its Share Price Rocketed?

Those holding Bet-At-Home.com (ETR:ACX) shares must be pleased that the share price has rebounded 53% in the last thirty days. But unfortunately, the stock is still down by 38% over a quarter. But that will do little to salve the savage burn caused by the 53% share price decline, over the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

Check out our latest analysis for Bet-At-Home.com

How Does Bet-At-Home.com's P/E Ratio Compare To Its Peers?

Bet-At-Home.com's P/E of 12.89 indicates relatively low sentiment towards the stock. If you look at the image below, you can see Bet-At-Home.com has a lower P/E than the average (21.2) in the hospitality industry classification.

XTRA:ACX Price Estimation Relative to Market April 15th 2020
XTRA:ACX Price Estimation Relative to Market April 15th 2020

Bet-At-Home.com's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.

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.

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Bet-At-Home.com saw earnings per share decrease by 45% last year. And it has shrunk its earnings per share by 6.9% per year over the last five years. This could justify a pessimistic P/E.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. So it won't reflect the advantage of cash, or disadvantage of debt. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

Bet-At-Home.com's Balance Sheet

With net cash of €55m, Bet-At-Home.com has a very strong balance sheet, which may be important for its business. Having said that, at 24% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.

The Verdict On Bet-At-Home.com's P/E Ratio

Bet-At-Home.com's P/E is 12.9 which is below average (17.4) in the DE market. Falling earnings per share are likely to be keeping potential buyers away, but the net cash position means the company has time to improve: if so, the low P/E could be an opportunity. What is very clear is that the market has become more optimistic about Bet-At-Home.com over the last month, with the P/E ratio rising from 8.4 back then to 12.9 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.

Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.

You might be able to find a better buy than Bet-At-Home.com. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

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.