【james bauer hero instinct】Don't Sell Air Canada (TSE:AC) Before You Read This
Thejames bauer hero instinct goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to Air Canada's (
TSE:AC
), to help you decide if the stock is worth further research. Based on the last twelve months,
Air Canada's P/E ratio is 11.93
. That means that at current prices, buyers pay CA$11.93 for every CA$1 in trailing yearly profits.
Check out our latest analysis for Air Canada
How Do I Calculate Air Canada's Price To Earnings Ratio?
The
formula for price to earnings
is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Air Canada:
P/E of 11.93 = CA$48.51 ÷ CA$4.07 (Based on the trailing twelve months to September 2019.)
Is A High Price-to-Earnings Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
How Does Air Canada's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Air Canada has a higher P/E than the average (10.9) P/E for companies in the airlines industry.
TSX:AC Price Estimation Relative to Market, January 1st 2020
That means that the market expects Air Canada will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So investors should always consider the P/E ratio alongside other factors, such as
whether company directors have been buying shares
.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. 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. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Air Canada's earnings made like a rocket, taking off 175% last year. The sweetener is that the annual five year growth rate of 43% is also impressive. With that kind of growth rate we would generally expect a high P/E ratio.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
Story continues
Is Debt Impacting Air Canada's P/E?
Net debt totals just 0.9% of Air Canada's market cap. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.
The Bottom Line On Air Canada's P/E Ratio
Air Canada's P/E is 11.9 which is below average (15.9) in the CA market. The company does have a little debt, and EPS growth was good last year. If it continues to grow, then the current low P/E may prove to be unjustified. Given analysts are expecting further growth, one might have expected a higher P/E ratio.
That may be worth further research
.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. So this
free
report on the analyst consensus forecasts
could help you make a
master move
on this stock.
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.
If you spot an error that warrants correction, please contact the editor at
. 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.
View comments
(责任编辑:Entertainment)
- ROYAL DUTCH SHELL PLC THIRD QUARTER 2020 EURO AND GBP EQUIVALENT DIVIDEND PAYMENTS
- The Latest: Ariz. gov. rejects call for online learning
- Chris Christie Scolds Obama on Climate Change
- Mark Goldfinger Examines the Benefits of a Hybrid Investment Strategy
- Here's How Long It Took Amazon To Reach A $100B Market Cap
- IMPORTANT INVESTOR NOTICE: The Schall Law Firm Announces the Filing of a Class Action Lawsuit Against PaySign, Inc. and Encourages Investors with Losses in Excess of $100,000 to Contact the Firm
- Virtus: 4Q Earnings Snapshot
- Should You Worry About Alexanderwerk Aktiengesellschaft's (FRA:ALX) CEO Pay?
- Bitcoin Exchange HitBTC Freezes Customers’ Accounts ahead of Proof of Keys Event
- Best & Worst Performing Stocks in Coronavirus Outbreak
- How Many Ares Commercial Real Estate Corporation (NYSE:ACRE) Shares Do Institutions Own?
- Report says Trump demanded top-secret clearance for Kushner
- Does Biosearch, S.A. (BME:BIO) Create Value For Shareholders?
-
Dublin, June 02, 2020 (GLOBE NEWSWIRE) -- The"Test Preparation Market in US 2020-2024"report has bee ...[详细]
-
Oil Price Fundamental Daily Forecast – Stock Market Weakness Weighing on Crude Prices
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower o ...[详细] -
2018’s $315B ETF Inflows 2nd Largest Ever
The U.S. stock market falling to the cusp of a bear market didn’t slow ETF investors. They still add ...[详细] -
Romney floats sweeping vaccine plan as U.S. nears 20 mln COVID-19 cases
By Susan HeaveyWASHINGTON, Jan 1 (Reuters) - Senator Mitt Romney on Friday urged the U.S. government ...[详细] -
It's not over until there is no virus anywhere in the world - WHO
GENEVA, June 5 (Reuters) - Some countries have seen "upticks" in COVID-19 cases as lockdowns ease, a ...[详细] -
Investing.com - UnitedHealth (NYSE:UNH) fell by 3.03% to trade at $241.58 by 10:35 (15:35 GMT) on We ...[详细]
-
The Wonderful Story of Henry Sugar Release Date Set for Wes Anderson Short Film
Wes Anderson’s new short film,The Wonderful Story of Henry Sugar, has been given an Oct. 2023 releas ...[详细] -
Brief Commentary On Clarus Corporation’s (NASDAQ:CLAR) Fundamentals
Attractive stocks have exceptional fundamentals. In the case of Clarus Corporation (NASDAQ:CLAR), th ...[详细] -
Air Filters for Food and Beverage Processing: Camfil Air filters. Significant energy savings resulte ...[详细]
-
Brexit poses risk, but German economy poised for further growth: minister
BERLIN (Reuters) - Britain's impending departure from the European Union poses a big risk, but domes ...[详细]
Exclusive: U.S. sanctions have idled a quarter of Iranian oil rigs
UK abolishes 'sexist' tax on women's sanitary products
- Stocks adding to biggest one day gain on stimulus hopes
- EU says Apple tax ruling not political and based on Apple data
- Does Hewlett Packard Enterprise Company’s (NYSE:HPE) P/E Ratio Signal A Buying Opportunity?
- Greta Van Fleet Announces Rescheduled Tour Dates
- Suzan Craig and Tahi Restore Nature and Make 100 Percent Natural, Genuine Honey
- Is There An Opportunity With Fu Shou Yuan International Group Limited's (HKG:1448) 24% Undervaluation?
- Brexit poses risk, but German economy poised for further growth -minister