Here’s What Bar Harbor Bankshares’s (NYSEMKT:BHB) P/E Ratio Is Telling Us

Posted by on Feb 7, 2019 in Local News | Comments Off on Here’s What Bar Harbor Bankshares’s (NYSEMKT:BHB) P/E Ratio Is Telling Us

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The goal of this article is to teach you how to use price to earnings ratios (P/E ratios).
We’ll look at Bar Harbor Bankshares’s (NYSEMKT:BHB) P/E ratio and reflect on what it tells us about the company’s share price.
Bar Harbor Bankshares has a price to earnings ratio of 11.16, based on the last twelve months.
That corresponds to an earnings yield of approximately 9.0%.

Check out our latest analysis for Bar Harbor Bankshares

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 Bar Harbor Bankshares:

P/E of 11.16 = $23.73 ÷ $2.13
(Based on the year to December 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.
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.’

How Growth Rates Impact P/E Ratios

Probably the most important factor in determining what P/E a company trades on is the earnings growth.
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.
Then, a lower P/E should attract more buyers, pushing the share price up.

Most would be impressed by Bar Harbor Bankshares earnings growth of 24% in the last year.
And its annual EPS growth rate over 5 years is 4.4%.
This could arguably justify a relatively high P/E ratio.

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.
If you look at the image below, you can see Bar Harbor Bankshares has a lower P/E than the average (13.2) in the banks industry classification.

AMEX:BHB PE PEG Gauge February 6th 19

AMEX:BHB PE PEG Gauge February 6th 19

Its relatively low P/E ratio indicates that Bar Harbor Bankshares shareholders think it will struggle to do as well as other companies in its industry classification.
Since the market seems unimpressed with Bar Harbor Bankshares, it’s quite possible it could surprise on the upside.
It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

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.

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.

Is Debt Impacting Bar Harbor Bankshares’s P/E?

Bar Harbor Bankshares has net debt worth a very significant 170% of its market capitalization.
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 Bar Harbor Bankshares’s P/E Ratio

Bar Harbor Bankshares trades on a P/E ratio of 11.2, which is below the US market average of 16.9.
While the EPS growth last year was strong, the significant debt levels reduce the number of options available to management.
The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not continue.

When the market is wrong about a stock, it gives savvy investors an opportunity.
If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself.
We don’t have analyst forecasts, but
shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

You might be able to find a better buy than Bar Harbor Bankshares. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

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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