Unfortunately for some shareholders, the Neenah (NYSE:NP) share price has dived 35% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 38% in that time.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. 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). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. 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 implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

View our latest analysis for Neenah

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

Neenah's P/E of 12.13 indicates some degree of optimism towards the stock. As you can see below, Neenah has a higher P/E than the average company (10.3) in the forestry industry.

That means that the market expects Neenah will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

When earnings fall, the 'E' decreases, over time. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

It's nice to see that Neenah grew EPS by a stonking 49% in the last year. In contrast, EPS has decreased by 4.2%, annually, over 5 years.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

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.

How Does Neenah's Debt Impact Its P/E Ratio?

Neenah has net debt equal to 29% of its market cap. While that's enough to warrant consideration, it doesn't really concern us.