Do You Like Public Joint-Stock Company “Second Generating Company of the Electric Power Wholesale Market” (MCX:OGKB) At This P/E Ratio?

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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll look at Public Joint-Stock Company “Second Generating Company of the Electric Power Wholesale Market”‘s (MCX:OGKB) P/E ratio and reflect on what it tells us about the company’s share price. What is Second Generating Company of the Electric Power Wholesale Market’s P/E ratio? Well, based on the last twelve months it is 5.27. That is equivalent to an earnings yield of about 19.0%.

Check out our latest analysis for Second Generating Company of the Electric Power Wholesale Market

How Do I Calculate Second Generating Company of the Electric Power Wholesale Market’s Price To Earnings Ratio?

The formula for P/E is:

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

Or for Second Generating Company of the Electric Power Wholesale Market:

P/E of 5.27 = RUB0.57 ÷ RUB0.11 (Based on the year to June 2019.)

Is A High Price-to-Earnings 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 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.

Does Second Generating Company of the Electric Power Wholesale Market Have A Relatively High Or Low P/E For Its Industry?

One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. If you look at the image below, you can see Second Generating Company of the Electric Power Wholesale Market has a lower P/E than the average (8.6) in the renewable energy industry classification.

MISX:OGKB Price Estimation Relative to Market, October 11th 2019

Second Generating Company of the Electric Power Wholesale Market’s P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with Second Generating Company of the Electric Power Wholesale Market, it’s quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.

Second Generating Company of the Electric Power Wholesale Market’s earnings made like a rocket, taking off 64% last year. The sweetener is that the annual five year growth rate of 18% is also impressive. So I’d be surprised if the P/E ratio was not above average.

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

Don’t forget that the P/E ratio considers market capitalization. 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.

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).

Is Debt Impacting Second Generating Company of the Electric Power Wholesale Market’s P/E?

Net debt is 42% of Second Generating Company of the Electric Power Wholesale Market’s market cap. While it’s worth keeping this in mind, it isn’t a worry.

The Bottom Line On Second Generating Company of the Electric Power Wholesale Market’s P/E Ratio

Second Generating Company of the Electric Power Wholesale Market has a P/E of 5.3. That’s below the average in the RU market, which is 6.8. The EPS growth last year was strong, and debt levels are quite reasonable. If the company can continue to grow earnings, then the current P/E may be unjustifiably low. Since analysts are predicting growth will continue, one might expect to see a higher P/E so it may be worth looking closer.

Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free report on the analyst consensus forecasts could help you make a master move on this stock.

But note: Second Generating Company of the Electric Power Wholesale Market may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio 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.