Those holding MindChamps PreSchool (SGX:CNE) shares must be pleased that the share price has rebounded 31% in the last thirty days. But unfortunately, the stock is still down by 26% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 50% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. 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.

Check out our latest analysis for MindChamps PreSchool

How Does MindChamps PreSchool's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 11.86 that sentiment around MindChamps PreSchool isn't particularly high. We can see in the image below that the average P/E (15.7) for companies in the consumer services industry is higher than MindChamps PreSchool's P/E.

This suggests that market participants think MindChamps PreSchool will underperform other companies in its industry. Since the market seems unimpressed with MindChamps PreSchool, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

MindChamps PreSchool increased earnings per share by 8.5% last year. And its annual EPS growth rate over 5 years is 14%. In contrast, EPS has decreased by 1.4%, annually, over 3 years.

Remember: P/E Ratios Don't Consider The Balance Sheet

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.