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Here’s What Interregional Distribution Grid Company of Center and Volga Region, Public Joint Stock Company’s (MCX:MRKP) P/E Ratio Is Telling Us

Today, we’ll introduce the concept of the P/E ratio for those who are learning about investing. To keep it practical, we’ll show how Interregional Distribution Grid Company of Center and Volga Region, Public Joint Stock Company’s (MCX:MRKP) P/E ratio could help you assess the value on offer. Interregional Distribution Grid Company of Center and Volga Region has a P/E ratio of 2.43, based on the last twelve months. That corresponds to an earnings yield of approximately 41.2%.

Check out our latest analysis for Interregional Distribution Grid Company of Center and Volga Region

How Do I Calculate Interregional Distribution Grid Company of Center and Volga Region’s Price To Earnings Ratio?

The formula for P/E is:

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

Or for Interregional Distribution Grid Company of Center and Volga Region:

P/E of 2.43 = RUB0.22 ÷ RUB0.09 (Based on the year to June 2019.)

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.

Does Interregional Distribution Grid Company of Center and Volga Region Have A Relatively High Or Low P/E For Its Industry?

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 Interregional Distribution Grid Company of Center and Volga Region has a lower P/E than the average (7.3) in the electric utilities industry classification.

MISX:MRKP Price Estimation Relative to Market, December 12th 2019
MISX:MRKP Price Estimation Relative to Market, December 12th 2019

Interregional Distribution Grid Company of Center and Volga Region’s P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

How Growth Rates Impact P/E Ratios

Generally speaking the rate of earnings growth has a profound impact on a company’s P/E multiple. Earnings growth means that in the future the ‘E’ will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.

Interregional Distribution Grid Company of Center and Volga Region shrunk earnings per share by 17% over the last year. But it has grown its earnings per share by 42% per year over the last five years.

Remember: P/E Ratios Don’t Consider The Balance Sheet

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won’t reflect the advantage of cash, or disadvantage of debt. 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).

Interregional Distribution Grid Company of Center and Volga Region’s Balance Sheet

Interregional Distribution Grid Company of Center and Volga Region’s net debt is 98% of its market cap. This is a reasonably significant level of debt — all else being equal you’d expect a much lower P/E than if it had net cash.

The Bottom Line On Interregional Distribution Grid Company of Center and Volga Region’s P/E Ratio

Interregional Distribution Grid Company of Center and Volga Region has a P/E of 2.4. That’s below the average in the RU market, which is 7.6. Given meaningful debt, and a lack of recent growth, the market looks to be extrapolating this recent performance; reflecting low expectations for the future.

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 report on the analyst consensus forecasts could help you make a master move on this stock.

Of course you might be able to find a better stock than Interregional Distribution Grid Company of Center and Volga Region. So you may wish to see this free collection of other companies that have grown earnings strongly.

If you spot an error that warrants correction, please contact the editor at [email protected]. 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.

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