It's really great to see that even after a strong run, Edvance International Holdings (HKG:8410) shares have been powering on, with a gain of 37% in the last thirty days. But shareholders may not all be feeling jubilant, since the share price is still down 18% 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. One way to gauge market expectations of a stock 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 Edvance International Holdings
Does Edvance International Holdings Have A Relatively High Or Low P/E For Its Industry?
Edvance International Holdings's P/E of 24.19 indicates some degree of optimism towards the stock. The image below shows that Edvance International Holdings has a higher P/E than the average (9.3) P/E for companies in the electronic industry.
Edvance International Holdings's P/E tells us that market participants think the company will perform better than its industry peers, going forward. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
In the last year, Edvance International Holdings grew EPS like Taylor Swift grew her fan base back in 2010; the 56% gain was both fast and well deserved. Even better, EPS is up 44% per year over three years. So you might say it really deserves to have an above-average P/E ratio.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.