Yahoo Finance Read This Before You Buy Juniper Networks, Inc. (NYSE:JNPR) Because Of Its P/E Ratio
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at Juniper Networks, Inc.'s (NYSE:JNPR) P/E ratio and reflect on what it tells us about the company's share price. Juniper Networks has a price to earnings ratio of 20.19, based on the last twelve months. In other words, at today's prices, investors are paying $20.19 for every $1 in prior year profit.
Check out our latest analysis for Juniper Networks
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Juniper Networks:
P/E of 20.19 = $20.300 ÷ $1.005 (Based on the trailing twelve months to December 2019.)
(Note: the above calculation results may not be precise due to rounding.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Does Juniper Networks's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Juniper Networks has a P/E ratio that is roughly in line with the communications industry average (21.4).
That indicates that the market expects Juniper Networks will perform roughly in line with other companies in its industry. The company could surprise by performing better than average, in the future. I would further inform my view by checking insider buying and selling., among other things.
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.
Juniper Networks shrunk earnings per share by 38% over the last year. And EPS is down 13% a year, over the last 3 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.
How Does Juniper Networks's Debt Impact Its P/E Ratio?
The extra options and safety that comes with Juniper Networks's US$271m net cash position means that it deserves a higher P/E than it would if it had a lot of net debt.
The Verdict On Juniper Networks's P/E Ratio
Juniper Networks has a P/E of 20.2. That's higher than the average in its market, which is 14.0. Falling earnings per share is probably keeping traditional value investors away, but the healthy balance sheet means the company retains the potential for future growth. If this growth fails to materialise, the current high P/E could prove to be temporary, as the share price falls.
Investors should be looking to buy stocks that the market is wrong about. 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.
But note: Juniper Networks may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio 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.
