Is publity AG (ETR:PBY) Attractive At This PE Ratio?
I am writing today to help inform people who are new to the stock market and want to learn about the link between company’s fundamentals and stock market performance.
publity AG (ETR:PBY) is trading with a trailing P/E of 7.3x, which is lower than the industry average of 9.7x. While this makes PBY appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio.
View our latest analysis for publity
Breaking down the Price-Earnings ratio
A common ratio used for relative valuation is the P/E ratio. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for PBY
Price-Earnings Ratio = Price per share ÷ Earnings per share
PBY Price-Earnings Ratio = €10.9 ÷ €1.486 = 7.3x
The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to PBY, such as capital structure and profitability. A common peer group is companies that exist in the same industry, which is what I use. Since PBY’s P/E of 7.3 is lower than its industry peers (9.7), it means that investors are paying less for each dollar of PBY’s earnings. This multiple is a median of profitable companies of 24 Real Estate companies in DE including CWG International, DEMIRE Deutsche Mittelstand Real Estate and Aroundtown. You can think of it like this: the market is suggesting that PBY is a weaker business than the average comparable company.
Assumptions to watch out for
However, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to PBY. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with PBY, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing PBY to are fairly valued by the market. If this is violated, PBY’s P/E may be lower than its peers as they are actually overvalued by investors.
What this means for you:
You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to PBY. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for PBY’s future growth? Take a look at our free research report of analyst consensus for PBY’s outlook.
Past Track Record: Has PBY been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of PBY’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
