Why the high price / earnings ratio of Opus Bank (NASDAQ: OPB) is not necessarily a bad thing

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<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The purpose of this article is to teach you how to understand how use price / earnings ratios (P / E ratios) We will show you how you can use Opus Bank's P / E ratio (NASDAQ: OPB) to inform your investment opportunity assessment. last twelve months, The price / earnings ratio of Opus Bank is 25.97.. This corresponds to a return of about 3.9%. "Data-reactid =" 27 "> The purpose of this article is to teach you how to use price / earnings ratios (P / E ratios) and how to use the Opus Bank C / B ratio ( NASDAQ: OPB) to document your assessment of the investment opportunity. The price / earnings ratio of Opus Bank is 25.97.. This corresponds to a return of about 3.9%.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " See our latest analysis for Opus Bank "data-reactid =" 28 "> See our latest analysis for Opus Bank

How do you calculate a P / E ratio?

<p class = "canvas-atom text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The formula for P / E is: "data-reactid =" 30 "> The formula for P / E is:

Price / earnings ratio = Price per share ÷ Earnings per share (EPS)

Or for Opus Bank:

P / E of 25.97 = 21.36 USD 0.82 USD (based on the 12 months to December 2018.)

Is a high price-earnings ratio good?

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "A higher P / E ratio means that investors are paying a higher price for every dollar of business gain. This is not a good or bad thing in itself, but a high P / E means that buyers have a better view of the company's prospects, compared to stock with a lower P / E. "Data-reactid =" 35 "> Higher P / E ratio means investors pay a higher price for every dollar of business gain. This is not good or bad in itself, but a high P / E means that buyers have a better view of the company's outlook, compared to stocks with lower P / E.

How growth rates affect P / E ratios

If incomes fall, the "E" will be lower. Therefore, even if you pay a low multiple of earnings now, this multiple will become higher in the future. Then a higher P / E could scare shareholders and bring down the price of the stock.

Opus Bank saw its earnings per share decrease by 36% last year. And over the long term (5 years), earnings per share decreased by 37% per year. This could lead to muted expectations.

What is the P / E ratio of Opus Bank compared to its peers?

We can get an indication of market expectations by looking at the P / E ratio. As you can see below, Opus Bank has a higher P / E than the average of the companies (13.3%) in the banking sector.

NasdaqGS: Estimated OPB prices relative to the market, March 15, 2019

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<p class = "canvas-canvas-text canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The P / E of Opus Bank indicates market participants We believe the company will outperform its industry counterparts in the future Shareholders are clearly optimistic, but the future is still uncertain so investors need to learn more . if the insiders of the company bought or sold. "data-reactid =" 53 "> The P / E of Opus Bank tells us that market players think that the company will get better results than its competitors in the sector. future is always uncertain.I like to check if the insiders of the company bought or sold.

Limit: P / E ratios ignore debt and cash at bank

The "price" in P / E reflects the market capitalization of the company. In other words, the debts and liquidities that the company can have in the balance sheet are not taken into account. Theoretically, a company can improve its profits (and produce a lower P / E in the future) by borrowing (or spending the remaining cash).

Overall, these expenses can be good or bad, but the bottom line here is that you need to look at the debt to understand the P / E ratio in its context.

Does the debt have an impact on the P / E of Opus Bank?

The additional options and security associated with Opus Bank's $ 122 million net cash position mean that it deserves a higher P / E than if it had significant net debt.

The verdict on the C / B ratio of Opus Bank

The Opus Bank P / E is 26, which is above average (17.5) in the US market. The recent decline in earnings per share would make some investors cautious, but with a healthy balance sheet, the company retains its potential for future growth. If this does not happen, the currently high P / E could prove temporary, as the price of the action will fall.

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Investors have an opportunity when market expectations regarding a action If the reality of a business is better than what it expects, you can make money buying and keeping long-term. free analyst consensus forecast report could help you make a master movement Investors have an opportunity when market expectations regarding an action are wrong.If the reality of a business is better than expected, you can earn money by buying and keeping it in the long run. free analyst consensus forecast report could help you make a master movement on this stock.

The story continues

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Of course you may be able to find a better stock than Opus Bank. So, you might want to see this free collection of other companies that have greatly increased their profits. "data-reactid =" 66 "> Of course you may be able to find a better stock than Opus Bank. So, you might want to see this free collection of other companies that have greatly increased their profits.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Our goal is to provide you with a long-term research analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive business announcements or qualitative information.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.

"data-reactid =" 67 "> Our goal is to provide you with a long-term research analysis based on fundamental data.Please note that our analysis may not take into account the latest announcements of price-sensitive companies or qualitative material.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.