Unfortunately for some shareholders, the Jones Lang LaSalle (NYSE:JLL) share price has dived 40% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 33% drop over twelve months.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that long term investors have an opportunity when expectations of a company are too low. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for Jones Lang LaSalle
Does Jones Lang LaSalle Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 9.08 that sentiment around Jones Lang LaSalle isn't particularly high. We can see in the image below that the average P/E (14.3) for companies in the real estate industry is higher than Jones Lang LaSalle's P/E.
Jones Lang LaSalle's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.
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. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Jones Lang LaSalle saw earnings per share improve by 3.3% last year. And its annual EPS growth rate over 5 years is 4.9%.
Remember: P/E Ratios Don't Consider The Balance Sheet
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. Thus, the metric does not reflect cash or debt held by the company. 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.
Jones Lang LaSalle's Balance Sheet
Jones Lang LaSalle has net debt equal to 26% of its market cap. While that's enough to warrant consideration, it doesn't really concern us.
The Bottom Line On Jones Lang LaSalle's P/E Ratio
Jones Lang LaSalle has a P/E of 9.1. That's below the average in the US market, which is 12.2. EPS grew over the last twelve months, and debt levels are quite reasonable. If growth is sustainable over the long term, then the current P/E ratio may be a sign of good value. Given Jones Lang LaSalle's P/E ratio has declined from 15.1 to 9.1 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
Investors should be looking to buy stocks that the market is wrong about. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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March 20, 2020 at 06:08PM
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A Sliding Share Price Has Us Looking At Jones Lang LaSalle Incorporated's (NYSE:JLL) P/E Ratio - Yahoo Finance
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