Those holding Swiss Water Decaffeinated Coffee (TSE:SWP) shares must be pleased that the share price has rebounded 34% in the last thirty days. But unfortunately, the stock is still down by 44% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 35% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. 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 deep value investors might steer clear when expectations of a company are too high. 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.