Is Public Joint Stock Company Kuzbasskaya Toplivnaya Company’s (MCX:KBTK) P/E Ratio Really That Good?

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The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Public Joint Stock Company Kuzbasskaya Toplivnaya Company’s (MCX:KBTK) P/E ratio could help you assess the value on offer. Kuzbasskaya Toplivnaya has a P/E ratio of 3.46, based on the last twelve months. That is equivalent to an earnings yield of about 29%.

Check out our latest analysis for Kuzbasskaya Toplivnaya

How Do You Calculate Kuzbasskaya Toplivnaya’s P/E Ratio?

The formula for P/E is:

Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)

Or for Kuzbasskaya Toplivnaya:

P/E of 3.46 = RUB207.8 ÷ RUB60.03 (Based on the trailing twelve months to September 2018.)

Is A High P/E Ratio Good?

A higher P/E ratio means that buyers have to pay a higher price for each RUB1 the company has earned over the last year. 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 Growth Rates Impact P/E Ratios

Probably the most important factor in determining what P/E a company trades on is the earnings growth. When earnings grow, the ‘E’ increases, over time. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.

Kuzbasskaya Toplivnaya increased earnings per share by a whopping 358% last year. And its annual EPS growth rate over 5 years is 64%. I’d therefore be a little surprised if its P/E ratio was not relatively high.

How Does Kuzbasskaya Toplivnaya’s P/E Ratio Compare To Its Peers?

We can get an indication of market expectations by looking at the P/E ratio. If you look at the image below, you can see Kuzbasskaya Toplivnaya has a lower P/E than the average (3.9) in the oil and gas industry classification.

This suggests that market participants think Kuzbasskaya Toplivnaya will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits

Don’t forget that the P/E ratio considers market capitalization. That means it doesn’t take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future), by taking on debt (or spending its remaining cash).

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

Kuzbasskaya Toplivnaya’s Balance Sheet

Net debt totals 20% of Kuzbasskaya Toplivnaya’s market cap. This could bring some additional risk, and reduce the number of investment options for management; worth remembering if you compare its P/E to businesses without debt.

The Bottom Line On Kuzbasskaya Toplivnaya’s P/E Ratio

Kuzbasskaya Toplivnaya trades on a P/E ratio of 3.5, which is below the RU market average of 7.3. The company hasn’t stretched its balance sheet, and earnings growth was good last year. If the company can continue to grow earnings, then the current P/E may be unjustifiably low.

Investors should be looking to buy stocks that the market is wrong about. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. We don’t have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course you might be able to find a better stock than Kuzbasskaya Toplivnaya. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.

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. Thank you for reading.