In This Article:
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll show how you can use Singamas Container Holdings Limited's (HKG:716) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Singamas Container Holdings's P/E ratio is 11.18. That means that at current prices, buyers pay HK$11.18 for every HK$1 in trailing yearly profits.
See our latest analysis for Singamas Container Holdings
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for Singamas Container Holdings:
P/E of 11.18 = HK$0.11 (Note: this is the share price in the reporting currency, namely, USD ) ÷ HK$0.01 (Based on the year to June 2019.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
How Does Singamas Container Holdings's P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. As you can see below, Singamas Container Holdings has a higher P/E than the average company (10.1) in the machinery industry.
That means that the market expects Singamas Container Holdings will outperform other companies in its industry. Clearly the market expects growth, but it isn't guaranteed. 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. 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. Then, a lower P/E should attract more buyers, pushing the share price up.
Singamas Container Holdings's earnings per share grew by -5.6% in the last twelve months. And its annual EPS growth rate over 5 years is 3.7%.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. 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).