What Is CTT Systems's (STO:CTT) P/E Ratio After Its Share Price Rocketed?
It's really great to see that even after a strong run, CTT Systems (STO:CTT) shares have been powering on, with a gain of 35% in the last thirty days. Looking back a bit further, we're also happy to report the stock is up 68% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. 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. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
See our latest analysis for CTT Systems
How Does CTT Systems's P/E Ratio Compare To Its Peers?
CTT Systems's P/E is 35.79. As you can see below CTT Systems has a P/E ratio that is fairly close for the average for the aerospace & defense industry, which is 35.8.
CTT Systems's P/E tells us that market participants think its prospects are roughly in line with its industry. The company could surprise by performing better than average, in the future. I would further inform my view by checking insider buying and selling., among other things.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
It's nice to see that CTT Systems grew EPS by a stonking 33% in the last year. And earnings per share have improved by 131% annually, over the last five years. So we'd generally expect it to have a relatively high P/E ratio.
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.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
How Does CTT Systems's Debt Impact Its P/E Ratio?
Since CTT Systems holds net cash of kr78m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Bottom Line On CTT Systems's P/E Ratio
CTT Systems has a P/E of 35.8. That's higher than the average in its market, which is 20.1. The excess cash it carries is the gravy on top its fast EPS growth. So based on this analysis we'd expect CTT Systems to have a high P/E ratio. What is very clear is that the market has become significantly more optimistic about CTT Systems over the last month, with the P/E ratio rising from 26.5 back then to 35.8 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.
Investors should be looking to buy stocks that the market is wrong about. 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 the key to an excellent investment decision.
Of course you might be able to find a better stock than CTT Systems. 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 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.
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.
