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Should You Buy LEG Immobilien AG (ETR:LEG) At This PE Ratio?

This article is intended for those of you who are at the beginning of your investing journey and want to better understand how you can grow your money by investing in LEG Immobilien AG (ETR:LEG).

LEG Immobilien AG (ETR:LEG) trades with a trailing P/E of 6.8x, which is lower than the industry average of 8.7x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. Today, I will explain what the P/E ratio is as well as what you should look out for when using it. View out our latest analysis for LEG Immobilien

Demystifying the P/E ratio

XTRA:LEG PE PEG Gauge June 22nd 18
XTRA:LEG PE PEG Gauge June 22nd 18

A common ratio used for relative valuation is the P/E ratio. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

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P/E Calculation for LEG

Price-Earnings Ratio = Price per share ÷ Earnings per share

LEG Price-Earnings Ratio = €95.26 ÷ €14.033 = 6.8x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as LEG, such as size and country of operation. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. At 6.8x, LEG’s P/E is lower than its industry peers (8.7x). This implies that investors are undervaluing each dollar of LEG’s earnings. As such, our analysis shows that LEG represents an under-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to buy LEG immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to LEG, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with LEG, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing LEG to are fairly valued by the market. If this is violated, LEG’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of LEG to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for LEG’s future growth? Take a look at our free research report of analyst consensus for LEG’s outlook.

  2. Past Track Record: Has LEG been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of LEG’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass 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.