Yahoo Finance What Does Tiffany & Co.’s (NYSE:TIF) P/E Ratio Tell You?
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). To keep it practical, we’ll show how Tiffany & Co.’s (NYSE:TIF) P/E ratio could help you assess the value on offer. Tiffany has a P/E ratio of 23.77, based on the last twelve months. That means that at current prices, buyers pay $23.77 for every $1 in trailing yearly profits.
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How Do You Calculate Tiffany’s P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Tiffany:
P/E of 23.77 = $85.36 ÷ $3.59 (Based on the trailing twelve months to October 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. 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
When earnings fall, the ‘E’ decreases, over time. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others — and that may encourage shareholders to sell.
Tiffany’s earnings per share fell by 4.1% in the last twelve months. But over the longer term (5 years) earnings per share have increased by 8.7%. And it has shrunk its earnings per share by 2.0% per year over the last three years. This growth rate might warrant a low P/E ratio. So it would be surprising to see a high P/E.
How Does Tiffany’s P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Tiffany has a higher P/E than the average (15.1) P/E for companies in the specialty retail industry.
Its relatively high P/E ratio indicates that Tiffany shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
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. 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 Tiffany’s Debt Impact Its P/E Ratio?
Net debt totals just 2.9% of Tiffany’s market cap. The market might award it a higher P/E ratio if it had net cash, but its unlikely this low level of net borrowing is having a big impact on the P/E multiple.
The Verdict On Tiffany’s P/E Ratio
Tiffany trades on a P/E ratio of 23.8, which is above the US market average of 16.8. With a bit of debt, but a lack of recent growth, it’s safe to say the market is expecting improved profit performance from the company, in the next few years.
Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth — so investors can make money when fast growth is not fully appreciated. 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 Tiffany. 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.
