Read this before you buy FormFactor, Inc. (NASDAQ: FORMULAR) due to its P / E ratio

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<p class = "Canvas-Atom Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This article is intended for investors who want to improve theirs Understanding the Price-Earnings Ratio (P / E). We apply a basic P / E analysis to FormFactor, Inc. (NASDAQ: FORM) to help you decide whether the stock is worth further research. Based on the past twelve months, FormFactor's P / E ratio is 18.72, This corresponds to a return on earnings of approx. 5.3%. "Data-reactid =" 27 "> This article is for investors who want to better understand the price to earnings (P / E) ratio. We apply a basic principle to P / E ratio analysis according to FormFactor, Inc. (NASDAQ: FORM) to decide if the stock is worth further research. FormFactor's P / E ratio is 18.72, This corresponds to a return on earnings of around 5.3%.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for FormFactor "data-reactid =" 28 "> Check out our latest analysis for FormFactor

How do you calculate a P / E ratio?

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The Formula for P / E is: "data-reactid =" 30 "> The Formula for P / E is:

Price-earnings ratio = price per share ÷ earnings per share (EPS)

Or for FormFactor:

P / E of $ 18.72 = $ 26.55 – $ 1.42 (based on the past twelve months through September 2019)

Is it good value for money?

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The higher the P / E ratio, the a company's price tag relative to its lagging earnings, which is not a good or bad thing per seHowever, a high P / E implies that buyers are optimistic about the future. "data-reactid =" 35 "> The higher the P / E ratio, the higher the price tag of a company in relation to its subsequent profit is not a good or bad thing per seHowever, a high P / E implies that buyers are optimistic about the future.

What is FormFactor's P / E ratio compared to its competitors?

Based on the P / E ratio, we can get an indication of market expectations. The picture below shows that the average P / E ratio (33.6) for companies in the semiconductor industry is higher than the P / E ratio of FormFactor.

NasdaqGS: FORM price estimate relative to the market, January 4, 2020

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "This indicates that market participants believe that FormFactor companies in his industry will underperform others. While current expectations are low, if the situation is better than the market assumes, the stock could be undervalued. You should dive deeper. I’m happy to review when company insiders bought or soldEmagazine.credit-suisse.com/app/art … = 157 & lang = DE This suggests that market participants assume that FormFactor 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 thinks I like to review when company insiders bought or sold,

How growth rates affect P / E

Earnings growth rates have a big impact on earnings. As revenue increases, the & # 39; E & # 39; with time. Even if you pay a high multiple of earnings now, that multiple will be lower in the future. A lower P / E should indicate that the stock is cheap compared to others – and this could attract buyers.

FormFactor's earnings were like a rocket, up 322% last year. And earnings per share have improved 120% annually over the past three years. So you could say that it really deserves to have an above average P / E ratio.

One restriction: P / E ignore debts and cash on hand

It is important to note that the P / E takes into account market capitalization and not company value. So it won't reflect the benefit of cash or the disadvantage of debt. A company could hypothetically lower its future P / E ratio by spending its cash (or borrowing) to generate higher profits.

Spending on growth could be good or bad a few years later, but the point is that the P / E doesn't take the option (or lack thereof) into account.

How does FormFactor's debt affect the P / E ratio?

The additional options and certainty that comes with FormFactor's net cash position of $ 154 million means that a higher P / E ratio is earned than a high net debt.

The judgment on the FormFactor P / E ratio

FormFactor is trading at a P / E ratio of 18.7, which is close to the US market average of 18.8. The net cash position is the culmination of the excellent EPS growth. Based on this analysis, we would expect FormFactor to have a higher P / E ratio.

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "If the market is wrong about a stock, it is this gives experienced investors a chance. As a value investor, Benjamin Graham said: "In the short term, the market is a voting machine, but in the long run it is a balance free visual report on analyst forecasts could be the key to an excellent investment decision. "data-reactid =" 61 "> If the market is wrong about a stock, it gives experienced investors a chance. As a value investor, Benjamin Graham famously said:" In the short term, the market is a voting machine, but in the long run it is it a Libra free A visual report on analyst forecasts could be the key to making an excellent investment decision.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Of course You could find a fantastic investment if you look at a few good candidates. So take a look free List of companies with low (or no) debt trading at a P / E ratio below 20."data-reactid =" 66 "> Of course You could find a fantastic investment if you look at a few good candidates. So take a look free List of companies with low (or no) debt trading at a P / E ratio below 20.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 67 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.