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Should You Be Tempted To Sell TT Electronics plc (LON:TTG) Because Of Its P/E Ratio?

Simply Wall St

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll look at TT Electronics plc's (LON:TTG) P/E ratio and reflect on what it tells us about the company's share price. Based on the last twelve months, TT Electronics's P/E ratio is 32.51. That corresponds to an earnings yield of approximately 3.1%.

Check out our latest analysis for TT Electronics

How Do You Calculate A P/E Ratio?

The formula for price to earnings is:


Or for TT Electronics:

P/E of 32.51 = £2.24 ÷ £0.07 (Based on the trailing twelve months to June 2019.)

Is A High P/E Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each £1 of company earnings. All else being equal, it's better to pay a low price -- but as Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Does TT Electronics Have A Relatively High Or Low P/E For Its Industry?

We can get an indication of market expectations by looking at the P/E ratio. The image below shows that TT Electronics has a higher P/E than the average (19.7) P/E for companies in the electronic industry.

LSE:TTG Price Estimation Relative to Market, October 15th 2019

That means that the market expects TT Electronics will outperform other companies in its industry. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios


TT Electronics shrunk earnings per share by 41% over the last year. But over the longer term (5 years) earnings per share have increased by 22%.




So What Does TT Electronics's Balance Sheet Tell Us?

Net debt totals 17% of TT Electronics's market cap. It would probably deserve a higher P/E ratio if it was net cash, since it would have more options for growth.

The Verdict On TT Electronics's P/E Ratio

TT Electronics trades on a P/E ratio of 32.5, which is above its market average of 16.4. 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.



