What Is EVS Broadcast Equipment's (EBR:EVS) P/E Ratio After Its Share Price Tanked?

Unfortunately for some shareholders, the EVS Broadcast Equipment (EBR:EVS) share price has dived 35% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 39% in that time.

Assuming nothing else has changed, a lower share price makes a stock more 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, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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.

Check out our latest analysis for EVS Broadcast Equipment

How Does EVS Broadcast Equipment's P/E Ratio Compare To Its Peers?

EVS Broadcast Equipment's P/E of 8.84 indicates relatively low sentiment towards the stock. The image below shows that EVS Broadcast Equipment has a lower P/E than the average (15.0) P/E for companies in the communications industry.

Its relatively low P/E ratio indicates that EVS Broadcast Equipment shareholders think it will struggle to do as well as other companies in its industry classification. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

If earnings fall then in the future the 'E' will be lower. That means unless the share price falls, the P/E will increase in a few years. Then, a higher P/E might scare off shareholders, pushing the share price down.

EVS Broadcast Equipment saw earnings per share decrease by 46% last year. And over the longer term (5 years) earnings per share have decreased 12% annually. This growth rate might warrant a below average P/E ratio.

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

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. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

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.

Is Debt Impacting EVS Broadcast Equipment's P/E?

With net cash of €54m, EVS Broadcast Equipment has a very strong balance sheet, which may be important for its business. Having said that, at 31% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.

The Bottom Line On EVS Broadcast Equipment's P/E Ratio

EVS Broadcast Equipment has a P/E of 8.8. That's below the average in the BE market, which is 12.9. The recent drop in earnings per share would make investors cautious, the healthy balance sheet means the company retains potential for future growth. If that occurs, the current low P/E could prove to be temporary. What can be absolutely certain is that the market has become more pessimistic about EVS Broadcast Equipment over the last month, with the P/E ratio falling from 13.5 back then to 8.8 today. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.

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.

Of course you might be able to find a better stock than EVS Broadcast Equipment. 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.