![]() Simply Wall St has no position in the stocks mentioned. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. If you spot an error that warrants correction, please contact the editor at This article by Simply Wall St is general in nature. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20. Of course, you might find a fantastic investment by looking at a few good candidates. We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. Investors should be looking to buy stocks that the market is wrong about. For those who don't like to trade against momentum, that could be a warning sign, but a contrarian investor might want to take a closer look. Given Rocky Mountain Chocolate Factory's P/E ratio has declined from 25.9 to 11.6 in the last month, we know for sure that the market is significantly less confident about the business today, than it was back then. So it's not surprising to see it trade on a P/E roughly in line with the market. While the absence of growth in the last year is probably causing a degree of pessimism, the healthy balance sheet means the company retains potential for future growth. Rocky Mountain Chocolate Factory's P/E is 11.6 which is about average (11.8) in the US market. The Bottom Line On Rocky Mountain Chocolate Factory's P/E Ratio Having said that, at 24% of its market capitalization the cash hoard would contribute towards a higher P/E ratio. With net cash of US$5.3m, Rocky Mountain Chocolate Factory has a very strong balance sheet, which may be important for its business. Rocky Mountain Chocolate Factory's Balance Sheet Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth. So it won't reflect the advantage of cash, or disadvantage of debt. The 'Price' in P/E reflects the market capitalization of the company. Don't Forget: The P/E Does Not Account For Debt or Bank Deposits And it has shrunk its earnings per share by 13% per year over the last five years. Rocky Mountain Chocolate Factory's earnings per share fell by 17% in the last twelve months.
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