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Here's What United Bankers Oyj's (HEL:UNIAV) P/E Is Telling Us

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). To keep it practical, we'll show how United Bankers Oyj's (HEL:UNIAV) P/E ratio could help you assess the value on offer. United Bankers Oyj has a P/E ratio of 17.44, based on the last twelve months. That is equivalent to an earnings yield of about 5.7%.

Check out our latest analysis for United Bankers Oyj

How Do I Calculate A Price To Earnings Ratio?

The formula for P/E is:

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

Or for United Bankers Oyj:

P/E of 17.44 = €7.700 ÷ €0.442 (Based on the year to December 2019.)

(Note: the above calculation results may not be precise due to rounding.)

Is A High P/E Ratio Good?

The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. 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 United Bankers Oyj 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. You can see in the image below that the average P/E (15.6) for companies in the capital markets industry is lower than United Bankers Oyj's P/E.

HLSE:UNIAV Price Estimation Relative to Market May 27th 2020
HLSE:UNIAV Price Estimation Relative to Market May 27th 2020

Its relatively high P/E ratio indicates that United Bankers Oyj shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. 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

Probably the most important factor in determining what P/E a company trades on is the earnings growth. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. Then, a lower P/E should attract more buyers, pushing the share price up.

United Bankers Oyj's earnings per share fell by 3.5% in the last twelve months. But it has grown its earnings per share by 5.3% per year over the last five years.

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. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

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.

How Does United Bankers Oyj's Debt Impact Its P/E Ratio?

Since United Bankers Oyj holds net cash of €2.9m, it can spend on growth, justifying a higher P/E ratio than otherwise.

The Verdict On United Bankers Oyj's P/E Ratio

United Bankers Oyj trades on a P/E ratio of 17.4, which is below the FI market average of 19.0. The recent drop in earnings per share would almost certainly temper expectations, but the net cash position means the company has time to improve: if so, the low P/E could be an opportunity.

When the market is wrong about a stock, it gives savvy investors an opportunity. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

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.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.