What Is Interregional Distribution Grid Company of Center and Volga Region's (MCX:MRKP) P/E Ratio After Its Share Price Tanked?

Simply Wall St

To the annoyance of some shareholders, Interregional Distribution Grid Company of Center and Volga Region (MCX:MRKP) shares are down a considerable 34% in the last month. That drop has capped off a tough year for shareholders, with the share price down 46% in that time.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

See our latest analysis for Interregional Distribution Grid Company of Center and Volga Region

How Does Interregional Distribution Grid Company of Center and Volga Region's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 2.46 that sentiment around Interregional Distribution Grid Company of Center and Volga Region isn't particularly high. The image below shows that Interregional Distribution Grid Company of Center and Volga Region has a lower P/E than the average (6.6) P/E for companies in the electric utilities industry.

MISX:MRKP Price Estimation Relative to Market March 27th 2020

This suggests that market participants think Interregional Distribution Grid Company of Center and Volga Region will underperform other companies in its industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Interregional Distribution Grid Company of Center and Volga Region saw earnings per share decrease by 43% last year. But EPS is up 23% over the last 3 years.

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. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.

How Does Interregional Distribution Grid Company of Center and Volga Region's Debt Impact Its P/E Ratio?

Net debt totals a substantial 148% of Interregional Distribution Grid Company of Center and Volga Region's market cap. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.

The Bottom Line On Interregional Distribution Grid Company of Center and Volga Region's P/E Ratio

Interregional Distribution Grid Company of Center and Volga Region has a P/E of 2.5. That's below the average in the RU market, which is 7.3. The P/E reflects market pessimism that probably arises from the lack of recent EPS growth, paired with significant leverage. What can be absolutely certain is that the market has become more pessimistic about Interregional Distribution Grid Company of Center and Volga Region over the last month, with the P/E ratio falling from 3.7 back then to 2.5 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.

Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. 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 Interregional Distribution Grid Company of Center and Volga Region. So you may wish to see this free collection of other companies that have grown earnings strongly.

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.

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. Thank you for reading.