Yahoo Finance How Does Bet-At-Home.com's (ETR:ACX) P/E Compare To Its Industry, After The Share Price Drop?
To the annoyance of some shareholders, Bet-At-Home.com (ETR:ACX) shares are down a considerable 38% in the last month. That drop has capped off a tough year for shareholders, with the share price down 49% in that time.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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. The implication here is that long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
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 8.76 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (21.7) for companies in the hospitality industry is higher than Bet-At-Home.com's P/E.
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
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Bet-At-Home.com's earnings per share fell by 23% in the last twelve months. But it has grown its earnings per share by 3.0% per year over the last five years. And it has shrunk its earnings per share by 7.0% per year over the last three years. This could justify a low P/E.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. That means it doesn't take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
So What Does Bet-At-Home.com's Balance Sheet Tell Us?
Bet-At-Home.com has net cash of €53m. This is fairly high at 22% of its market capitalization. That might mean balance sheet strength is important to the business, but should also help push the P/E a bit higher than it would otherwise be.
The Bottom Line On Bet-At-Home.com's P/E Ratio
Bet-At-Home.com trades on a P/E ratio of 8.8, which is below the DE market average of 16.8. Falling earnings per share are likely to be keeping potential buyers away, the relatively strong balance sheet will allow the company time to invest in growth. If it achieves that, then there's real potential that the low P/E could eventually indicate undervaluation. Given Bet-At-Home.com's P/E ratio has declined from 14.2 to 8.8 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
When the market is wrong about a stock, it gives savvy investors an opportunity. 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.
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