Here’s How P/E Ratios Can Help Us Understand Bar Harbor Bankshares (NYSEMKT:BHB)

Posted by on Nov 8, 2018 in Local News | Comments Off on Here’s How P/E Ratios Can Help Us Understand Bar Harbor Bankshares (NYSEMKT:BHB)

This article is written for those who want to get better at using price to earnings ratios (P/E ratios).
To keep it practical, we’ll show how Bar Harbor Bankshares’s (NYSEMKT:BHB) P/E ratio could help you assess the value on offer.
Based on the last twelve months, Bar Harbor Bankshares’s P/E ratio is 12.46.
That is equivalent to an earnings yield of about 8.0%.

View our latest analysis for Bar Harbor Bankshares

How Do I Calculate A Price To Earnings Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)

Or for Bar Harbor Bankshares:

P/E of 12.46 = $25.72 ÷ $2.06
(Based on the trailing twelve months to September 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each $1 of company earnings.
That isn’t a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business’s prospects, relative to stocks with a lower P/E.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates.
Earnings growth means that in the future the ‘E’ will be higher.
Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future.
A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.

Bar Harbor Bankshares increased earnings per share by a whopping 28% last year.
And earnings per share have improved by 3.9% annually, over the last five years.
I’d therefore be a little surprised if its P/E ratio was not relatively high.

How Does Bar Harbor Bankshares’s P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company.
The image below shows that Bar Harbor Bankshares has a lower P/E than the average (15.6) P/E for companies in the banks industry.

AMEX:BHB PE PEG Gauge November 8th 18

AMEX:BHB PE PEG Gauge November 8th 18

This suggests that market participants think Bar Harbor Bankshares will underperform other companies in its industry.
While current expectations are low, the stock could be undervalued if the situation is better than the market assumes.
It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

The ‘Price’ in P/E reflects the market capitalization of the company.
That means it doesn’t take debt or cash into account.
In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

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.

How Does Bar Harbor Bankshares’s Debt Impact Its P/E Ratio?

Bar Harbor Bankshares has net debt worth a very significant 178% of its market capitalization.
This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.

The Verdict On Bar Harbor Bankshares’s P/E Ratio

Bar Harbor Bankshares has a P/E of 12.5. That’s below the average in the US market, which is 18.4.
The company may have significant debt, but EPS growth was good last year.
If the company can continue to grow earnings, then the current P/E may be unjustifiably low.

Investors should be looking to buy stocks that the market is wrong about.
If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this.
Although we don’t have analyst forecasts,
you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course you might be able to find a better stock than Bar Harbor Bankshares. So you may wish to see this free collection of other companies that have grown earnings strongly.

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

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