Yahoo Finance What Is Moda Bagno - N. Varveris's (ATH:MODA) P/E Ratio After Its Share Price Tanked?
To the annoyance of some shareholders, Moda Bagno - N. Varveris (ATH:MODA) shares are down a considerable 32% in the last month. Even longer term holders have taken a real hit with the stock declining 21% in the last year.
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. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
Check out our latest analysis for Moda Bagno - N. Varveris
How Does Moda Bagno - N. Varveris's P/E Ratio Compare To Its Peers?
Moda Bagno - N. Varveris's P/E of 17.39 indicates some degree of optimism towards the stock. As you can see below, Moda Bagno - N. Varveris has a higher P/E than the average company (16.1) in the specialty retail industry.
Its relatively high P/E ratio indicates that Moda Bagno - N. Varveris shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So further research is always essential. I often monitor director buying and selling.
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. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.
In the last year, Moda Bagno - N. Varveris grew EPS like Taylor Swift grew her fan base back in 2010; the 474% gain was both fast and well deserved.
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. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Is Debt Impacting Moda Bagno - N. Varveris's P/E?
Moda Bagno - N. Varveris has net debt worth a very significant 112% of its market capitalization. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you're comparing it to other stocks.
The Verdict On Moda Bagno - N. Varveris's P/E Ratio
Moda Bagno - N. Varveris's P/E is 17.4 which is above average (12.9) in its market. Its meaningful level of debt should warrant a lower P/E ratio, but the fast EPS growth is a positive. So despite the debt it is, perhaps, not unreasonable to see a high P/E ratio. What can be absolutely certain is that the market has become significantly less optimistic about Moda Bagno - N. Varveris over the last month, with the P/E ratio falling from 25.7 back then to 17.4 today. For those who don't like to trade against momentum, that could be a warning sign, but a contrarian investor might want to take a closer look.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. Although we don't have analyst forecasts shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
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.
