Unfortunately for some shareholders, the Neenah (NYSE:NP) share price has dived 40% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 34% in that time.

All else being equal, a share price drop should make a stock more 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 long term investors have an opportunity when expectations of a company are too low. 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.

See our latest analysis for Neenah

Does Neenah Have A Relatively High Or Low P/E For Its Industry?

We can tell from its P/E ratio of 12.94 that there is some investor optimism about Neenah. The image below shows that Neenah has a higher P/E than the average (11.8) P/E for companies in the forestry industry.

Its relatively high P/E ratio indicates that Neenah shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So investors should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

If earnings fall then in the future the 'E' will be lower. That means unless the share price falls, the P/E will increase in a few years. Then, a higher P/E might scare off shareholders, pushing the share price down.

Neenah increased earnings per share by a whopping 49% last year. Unfortunately, earnings per share are down 4.2% a year, over 5 years.

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

The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

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.

Is Debt Impacting Neenah's P/E?

Neenah has net debt equal to 27% of its market cap. While it's worth keeping this in mind, it isn't a worry.