Here’s What Sunteck Realty Limited’s (NSE:SUNTECK) P/E Is Telling Us
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We’ll look at Sunteck Realty Limited’s (NSE:SUNTECK) P/E ratio and reflect on what it tells us about the company’s share price. Based on the last twelve months, Sunteck Realty’s P/E ratio is 20.36. That means that at current prices, buyers pay ₹20.36 for every ₹1 in trailing yearly profits.
Check out our latest analysis for Sunteck Realty
How Do I Calculate Sunteck Realty’s Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Sunteck Realty:
P/E of 20.36 = ₹344.7 ÷ ₹16.93 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each ₹1 of company earnings. 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. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. 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.
It’s nice to see that Sunteck Realty grew EPS by a stonking 39% in the last year. And earnings per share have improved by 22% annually, over the last five years. With that performance, I would expect it to have an above average P/E ratio.
How Does Sunteck Realty’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. As you can see below, Sunteck Realty has a higher P/E than the average company (17.3) in the real estate industry.
That means that the market expects Sunteck Realty will outperform other companies in its industry. The market is optimistic about the future, but that doesn’t guarantee future growth. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
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. That means it doesn’t take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
How Does Sunteck Realty’s Debt Impact Its P/E Ratio?
Net debt totals just 5.8% of Sunteck Realty’s market cap. It would probably trade on a higher P/E ratio if it had a lot of cash, but I doubt it is having a big impact.
The Verdict On Sunteck Realty’s P/E Ratio
Sunteck Realty trades on a P/E ratio of 20.4, which is above the IN market average of 16.8. Its debt levels do not imperil its balance sheet and it has already proven it can grow. So it does not seem strange that the P/E is above average.
When the market is wrong about a stock, it gives savvy investors an opportunity. 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 visual report on analyst forecasts could hold they key to an excellent investment decision.
Of course you might be able to find a better stock than Sunteck Realty. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
