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Elgin Electronics: External Factors and Price-Earnings Ratio

When Elgin Electronics was floated on the market six years ago it was recognised as a growth company, with significant opportunities as a growth company, with significant opportunities for profitable investment. Its profits performance has been in line with performance but its price earnings ratio has fallen over the last three years but remains above the average for its sector. Should this be a matter of concern to the company?

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These external factors can be inflation, interest rates, federal deficits, etc: Kindly think in the following terms.

These factors usually adjust the price of that investors are willing to pay for Elgin Electronics stock. Since these factors are impermanent in nature, the consequential stock price and P/E ratio of Elgin Electronics need to be viewed with this in mind.

Industry factors
Please think of the following:If the products of Elgin Electronics are cyclical in they can produce misleading P/E ratios. Since financial publications will publish a P/E ratio based on Elgin Electronics 's earnings over the last 12 months, if its industry has been in a recession for the last 12 months, the P/E ratio may be deceivingly high.

Emotional factors or investor confidence
No other factor is so difficult to predict. In moments of unreasonable enthusiasm, investors can bid up the prices of Elgin ...

Solution Summary

This solution discusses factors that may aid the discussion of whether Elgin Electronics should be concerned about its falling P/E ratio. This solution is 591 words.