Yahoo Finance What Is Origin Bancorp's (NASDAQ:OBNK) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Origin Bancorp (NASDAQ:OBNK) share price has dived 45% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 42% drop over twelve months.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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 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 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 Origin Bancorp
How Does Origin Bancorp's P/E Ratio Compare To Its Peers?
Origin Bancorp has a P/E ratio of 8.49. You can see in the image below that the average P/E (8.5) for companies in the banks industry is roughly the same as Origin Bancorp's P/E.
Its P/E ratio suggests that Origin Bancorp shareholders think that in the future it will perform about the same as other companies in its industry classification. The company could surprise by performing better than average, in the future. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. 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. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Origin Bancorp's earnings per share grew by 3.8% in the last twelve months. And its annual EPS growth rate over 5 years is 38%.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. 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.
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.
Origin Bancorp's Balance Sheet
Net debt is 30% of Origin Bancorp's market cap. You'd want to be aware of this fact, but it doesn't bother us.
The Verdict On Origin Bancorp's P/E Ratio
Origin Bancorp has a P/E of 8.5. That's below the average in the US market, which is 12.4. The company hasn't stretched its balance sheet, and earnings are improving. If growth is sustainable over the long term, then the current P/E ratio may be a sign of good value. What can be absolutely certain is that the market has become more pessimistic about Origin Bancorp over the last month, with the P/E ratio falling from 15.3 back then to 8.5 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
You might be able to find a better buy than Origin Bancorp. 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.
