Yahoo Finance Should We Worry About BJ’s Restaurants Inc’s (NASDAQ:BJRI) P/E Ratio?
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 BJ’s Restaurants Inc’s (NASDAQ:BJRI) P/E ratio to inform your assessment of the investment opportunity. BJ’s Restaurants has a price to earnings ratio of 18.58, based on the last twelve months. That is equivalent to an earnings yield of about 5.4%.
See our latest analysis for BJ’s Restaurants
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for BJ’s Restaurants:
P/E of 18.58 = $56.82 ÷ $3.06 (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 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. Earnings growth means that in the future the ‘E’ will be higher. That means unless the share price increases, the P/E will reduce in a few years. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
It’s nice to see that BJ’s Restaurants grew EPS by a stonking 96% in the last year. And its annual EPS growth rate over 5 years is 25%. So we’d generally expect it to have a relatively high P/E ratio.
How Does BJ’s Restaurants’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, BJ’s Restaurants has a higher P/E than the average company (16.4) in the hospitality industry.
Its relatively high P/E ratio indicates that BJ’s Restaurants shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn’t guaranteed. 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
Don’t forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
BJ’s Restaurants’s Balance Sheet
BJ’s Restaurants’s net debt is 5.7% of its market cap. So it doesn’t have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.
The Verdict On BJ’s Restaurants’s P/E Ratio
BJ’s Restaurants’s P/E is 18.6 which is about average (17.9) in the US market. Given it has reasonable debt levels, and grew earnings strongly last year, the P/E indicates the market has doubts this growth can be sustained.
When the market is wrong about a stock, it gives savvy investors an opportunity. 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 report on the analyst consensus forecasts could help you make a master move on this stock.
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.
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.
