A strong performer from today's morning trading session is Clear Channel Outdoor, whose shares rose 6.8% to $1.42 per share. For those of you thinking about investing in the stock, here is a brief look at the company's fundamentals.
Clear Channel Outdoor Holdings, Inc. owns, operates, and sells advertising displays in the United States and internationally. The company belongs to the Communication Services sector, which has an average price to earnings (P/E) ratio of 18.65. In contrast, Clear Channel Outdoor has a trailing 12 month P/E ratio of -1.1 based on its earnings per share of $-1.25.
There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.
One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Clear Channel Outdoor's PEG ratio is -0.74, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
