Yahoo Finance What Is BGC Partners's (NASDAQ:BGCP) P/E Ratio After Its Share Price Rocketed?
BGC Partners (NASDAQ:BGCP) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month alone, although it is still down 46% over the last quarter. But shareholders may not all be feeling jubilant, since the share price is still down 44% 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. 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.
View our latest analysis for BGC Partners
How Does BGC Partners's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 19.13 that sentiment around BGC Partners isn't particularly high. The image below shows that BGC Partners has a lower P/E than the average (35.1) P/E for companies in the capital markets industry.
This suggests that market participants think BGC Partners will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. You should delve deeper. I like to check if company insiders have been buying or 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 even if the current P/E is high, it will reduce over time if the share price stays flat. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
BGC Partners saw earnings per share decrease by 26% last year.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
Is Debt Impacting BGC Partners's P/E?
Net debt is 37% of BGC Partners's market cap. While that's enough to warrant consideration, it doesn't really concern us.
The Verdict On BGC Partners's P/E Ratio
BGC Partners trades on a P/E ratio of 19.1, which is above its market average of 14.9. With a bit of debt, but a lack of recent growth, it's safe to say the market is expecting improved profit performance from the company, in the next few years. What we know for sure is that investors have become more excited about BGC Partners recently, since they have pushed its P/E ratio from 14.3 to 19.1 over the last month. 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. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
Of course you might be able to find a better stock than BGC Partners. So you may wish to see this free collection of other companies that have grown earnings strongly.
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