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Do You Know What FONAR Corporation's (NASDAQ:FONR) P/E Ratio Means?

Simply Wall St


This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at FONAR Corporation's (NASDAQ:FONR) P/E ratio and reflect on what it tells us about the company's share price. FONAR has a P/E ratio of 7.13, based on the last twelve months. That corresponds to an earnings yield of approximately 14%.

View our latest analysis for FONAR

How Do I Calculate A Price To Earnings Ratio?

The formula for P/E is:


Or for FONAR:

P/E of 7.13 = $20.94 ÷ $2.94 (Based on the trailing twelve months to December 2018.)

Is A High P/E Ratio Good?


How Growth Rates Impact P/E Ratios


FONAR's earnings per share were pretty steady over the last year. But it has grown its earnings per share by 14% per year over the last five years.

How Does FONAR's P/E Ratio Compare To Its Peers?

We can get an indication of market expectations by looking at the P/E ratio. The image below shows that FONAR has a lower P/E than the average (39.8) P/E for companies in the medical equipment industry.

NasdaqCM:FONR Price Estimation Relative to Market, April 3rd 2019

Its relatively low P/E ratio indicates that FONAR shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with FONAR, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.


Don't forget that the P/E ratio considers market capitalization. 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.


FONAR's Balance Sheet

The extra options and safety that comes with FONAR's US$23m net cash position means that it deserves a higher P/E than it would if it had a lot of net debt.

The Verdict On FONAR's P/E Ratio

FONAR trades on a P/E ratio of 7.1, which is below the US market average of 17.7. EPS was up modestly better over the last twelve months. And the healthy balance sheet means the company can sustain growth while the P/E suggests shareholders don't think it will.



