Yahoo Finance Don’t Sell Cleanaway Waste Management Limited (ASX:CWY) Before You Read This
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This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Cleanaway Waste Management Limited’s (ASX:CWY) P/E ratio to inform your assessment of the investment opportunity. Cleanaway Waste Management has a P/E ratio of 36.65, based on the last twelve months. That means that at current prices, buyers pay A$36.65 for every A$1 in trailing yearly profits.
See our latest analysis for Cleanaway Waste Management
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Cleanaway Waste Management:
P/E of 36.65 = A$2.15 ÷ A$0.059 (Based on the trailing twelve months to December 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each A$1 of company earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.
Cleanaway Waste Management saw earnings per share improve by -8.3% last year. And its annual EPS growth rate over 5 years is 70%.
How Does Cleanaway Waste Management’s P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Cleanaway Waste Management has a higher P/E than the average (22.3) P/E for companies in the commercial services industry.
That means that the market expects Cleanaway Waste Management will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits
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 taking on debt (or spending its remaining 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.
Cleanaway Waste Management’s Balance Sheet
Cleanaway Waste Management has net debt worth 15% of its market capitalization. That’s enough debt to impact the P/E ratio a little; so keep it in mind if you’re comparing it to companies without debt.
The Bottom Line On Cleanaway Waste Management’s P/E Ratio
Cleanaway Waste Management has a P/E of 36.6. That’s higher than the average in the AU market, which is 15.7. Given the debt is only modest, and earnings are already moving in the right direction, it’s not surprising that the market expects continued improvement.
When the market is wrong about a stock, it gives savvy investors an opportunity. People often underestimate remarkable growth — so investors can make money when fast growth is not fully appreciated. 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 Cleanaway Waste Management. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
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. On rare occasion, data errors may occur. Thank you for reading.
