Yahoo Finance Does Anheuser-Busch InBev SA/NV (EBR:ABI) Have A Good P/E Ratio?
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Anheuser-Busch InBev SA/NV’s (EBR:ABI) P/E ratio could help you assess the value on offer. Based on the last twelve months, Anheuser-Busch InBev’s P/E ratio is 21.7. In other words, at today’s prices, investors are paying €21.7 for every €1 in prior year profit.
See our latest analysis for Anheuser-Busch InBev
How Do You Calculate Anheuser-Busch InBev’s P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share (in the reporting currency) ÷ Earnings per Share (EPS)
Or for Anheuser-Busch InBev:
P/E of 21.7 = $76.31 (Note: this is the share price in the reporting currency, namely, USD ) ÷ $3.52 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each €1 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.
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.
Notably, Anheuser-Busch InBev grew EPS by a whopping 31% in the last year. But earnings per share are down 25% per year over the last five years.
How Does Anheuser-Busch InBev’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. As you can see below Anheuser-Busch InBev has a P/E ratio that is fairly close for the average for the beverage industry, which is 22.2.
Its P/E ratio suggests that Anheuser-Busch InBev shareholders think that in the future it will perform about the same as other companies in its industry classification. If the company has better than average prospects, then the market might be underestimating it. I inform my view byby checking management tenure and remuneration, among other things.
Remember: P/E Ratios Don’t Consider The Balance Sheet
The ‘Price’ in P/E reflects the market capitalization of the company. That means it doesn’t take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
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.
Anheuser-Busch InBev’s Balance Sheet
Anheuser-Busch InBev’s net debt is 72% of its market cap. This is a reasonably significant level of debt — all else being equal you’d expect a much lower P/E than if it had net cash.
The Verdict On Anheuser-Busch InBev’s P/E Ratio
Anheuser-Busch InBev’s P/E is 21.7 which is above average (13.8) in the BE market. It has already proven it can grow earnings, but the debt levels mean it faces some risks. It seems the market believes growth will continue, judging by the P/E ratio.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. 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 be able to find a better stock than Anheuser-Busch InBev. So you may wish to see this free collection of other companies that have grown earnings strongly.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
