In This Article:
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at Glory Sun Financial Group Limited's (HKG:1282) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Glory Sun Financial Group has a P/E ratio of 12.12. That means that at current prices, buyers pay HK$12.12 for every HK$1 in trailing yearly profits.
Check out our latest analysis for Glory Sun Financial Group
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Glory Sun Financial Group:
P/E of 12.12 = HK$0.32 ÷ HK$0.026 (Based on the trailing twelve months to December 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
Does Glory Sun Financial Group Have A Relatively High Or Low P/E For Its Industry?
One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. You can see in the image below that the average P/E (10.1) for companies in the tech industry is lower than Glory Sun Financial Group's P/E.
Its relatively high P/E ratio indicates that Glory Sun Financial Group 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 always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Glory Sun Financial Group's earnings per share fell by 33% in the last twelve months. But EPS is up 3.3% over the last 3 years. And it has shrunk its earnings per share by 10.0% per year over the last five years. This could justify a pessimistic P/E.
Remember: P/E Ratios Don't Consider The Balance Sheet
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. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.