In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to China Greenland Broad Greenstate Group Company Limited's (HKG:1253), to help you decide if the stock is worth further research. What is China Greenland Broad Greenstate Group's P/E ratio? Well, based on the last twelve months it is 29.83. That corresponds to an earnings yield of approximately 3.4%.
Check out our latest analysis for China Greenland Broad Greenstate Group
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for China Greenland Broad Greenstate Group:
P/E of 29.83 = CN¥0.53 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥0.018 (Based on the year to December 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.
China Greenland Broad Greenstate Group saw earnings per share decrease by 62% last year. And over the longer term (5 years) earnings per share have decreased 8.8% annually. This might lead to muted expectations.
How Does China Greenland Broad Greenstate Group's P/E Ratio Compare To Its Peers?
One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. As you can see below, China Greenland Broad Greenstate Group has a higher P/E than the average company (13.6) in the commercial services industry.
That means that the market expects China Greenland Broad Greenstate Group will outperform other companies in its industry. The market is optimistic about the future, but that doesn't guarantee future growth. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
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. That means it doesn't take debt or cash into account. 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).