A Rising Share Price Has Us Looking Closely At Bharatiya Global Infomedia Limited's (NSE:BGLOBAL) P/E Ratio
Bharatiya Global Infomedia (NSE:BGLOBAL) shares have had a really impressive month, gaining 32%, after some slippage. But shareholders may not all be feeling jubilant, since the share price is still down 28% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. 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 some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
Check out our latest analysis for Bharatiya Global Infomedia
How Does Bharatiya Global Infomedia's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 16.11 that there is some investor optimism about Bharatiya Global Infomedia. The image below shows that Bharatiya Global Infomedia has a higher P/E than the average (11.5) P/E for companies in the it industry.
Its relatively high P/E ratio indicates that Bharatiya Global Infomedia shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Bharatiya Global Infomedia increased earnings per share by an impressive 22% over the last twelve months. In contrast, EPS has decreased by 32%, annually, over 5 years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. So it won't reflect the advantage of cash, or disadvantage of debt. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
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.
Bharatiya Global Infomedia's Balance Sheet
Bharatiya Global Infomedia has net debt worth a very significant 183% of its market capitalization. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.
The Bottom Line On Bharatiya Global Infomedia's P/E Ratio
Bharatiya Global Infomedia has a P/E of 16.1. That's higher than the average in its market, which is 13.1. It has already proven it can grow earnings, but the debt levels mean it faces some risks. But if growth falters, the relatively high P/E ratio may prove to be unjustified. What is very clear is that the market has become more optimistic about Bharatiya Global Infomedia over the last month, with the P/E ratio rising from 12.2 back then to 16.1 today. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.
Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. Although we don't have analyst forecasts you might want to assess this data-rich visualization 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.
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.
