Turning Point Brands (NYSE:TPB)

Don’t Sell Turning Point Brands, Inc. (NYSE:TPB) Before You Read This
[Simply Wall St.]
Blake Harford
,Simply Wall St.•January 16, 2019

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 Turning Point Brands, Inc.’s (NYSE:TPB) P/E ratio could help you assess the value on offer. Turning Point Brands has a price to earnings ratio of 23.42, based on the last twelve months. That corresponds to an earnings yield of approximately 4.3%.

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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 Turning Point Brands:

P/E of 23.42 = $28.95 ÷ $1.24 (Based on the trailing twelve months to September 2018.)
Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that buyers have to pay a higher price for each $1 the company has earned over the last year. That isn’t necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the ‘E’ increases, over time. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others — and that may attract buyers.

Turning Point Brands shrunk earnings per share by 30% over the last year. But EPS is up 43% over the last 5 years.
How Does Turning Point Brands’s P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company. As you can see below, Turning Point Brands has a higher P/E than the average company (11.6) in the tobacco industry.