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 show how you can use Guangdong Adway Construction (Group) Holdings Company Limited's (HKG:6189) P/E ratio to inform your assessment of the investment opportunity. Guangdong Adway Construction (Group) Holdings has a price to earnings ratio of 25.45, based on the last twelve months. That corresponds to an earnings yield of approximately 3.9%.
View our latest analysis for Guangdong Adway Construction (Group) Holdings
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Price per Share (in the reporting currency) ÷ Earnings per Share (EPS)
Or for Guangdong Adway Construction (Group) Holdings:
P/E of 25.45 = HK$15.52 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ HK$0.61 (Based on the year to June 2019.)
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 isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
Does Guangdong Adway Construction (Group) Holdings Have A Relatively High Or Low P/E For Its Industry?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Guangdong Adway Construction (Group) Holdings has a higher P/E than the average (10.3) P/E for companies in the construction industry.
That means that the market expects Guangdong Adway Construction (Group) Holdings will outperform other companies in its industry. Clearly the market expects growth, but it isn't guaranteed. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
When earnings fall, the 'E' decreases, over time. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
Guangdong Adway Construction (Group) Holdings saw earnings per share improve by -9.5% last year. And earnings per share have improved by 9.3% annually, over the last five years. Unfortunately, earnings per share are down 1.6% a year, over 3 years.
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.