This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Springland International Holdings Limited’s (HKG:1700) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Springland International Holdings’s P/E ratio is 8.96. That is equivalent to an earnings yield of about 11%.
Check out our latest analysis for Springland International Holdings
Want to help shape the future of investing tools and platforms? Take the survey and be part of one of the most advanced studies of stock market investors to date.
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for Springland International Holdings:
P/E of 8.96 = CN¥1.39 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥0.16 (Based on the year to June 2018.)
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 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.
It’s great to see that Springland International Holdings grew EPS by 16% in the last year. In contrast, EPS has decreased by 18%, annually, over 5 years.
How Does Springland International Holdings’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Springland International Holdings has a lower P/E than the average (15.9) P/E for companies in the consumer retailing industry.
Springland International Holdings’s P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with Springland International Holdings, it’s quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don’t Consider The Balance Sheet
Don’t forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. Theoretically, a business can improve its earnings (and produce a lower P/E in the future), by taking on debt (or spending its remaining cash).