Should We Worry About Get Nice Financial Group Limited’s (HKG:1469) P/E Ratio?

Jenifer Prater

Sun, Feb 10, 2019, 6:13 PM

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll look at Get Nice Financial Group Limited’s (HKG:1469) P/E ratio and reflect on what it tells us about the company’s share price. Based on the last twelve months, Get Nice Financial Group’s P/E ratio is 12.88. That corresponds to an earnings yield of approximately 7.8%.

Check out our latest analysis for Get Nice Financial Group

How Do I Calculate A Price To Earnings Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)

Or for Get Nice Financial Group:

P/E of 12.88 = HK$0.94 ÷ HK$0.073 (Based on the year to September 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that buyers have to pay a higher price for each HK$1 the company has earned over the last year. 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.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. 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. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Get Nice Financial Group saw earnings per share decrease by 38% last year. And it has shrunk its earnings per share by 144% per year over the last five years. This might lead to muted expectations.

How Does Get Nice Financial Group’s P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company. You can see in the image below that the average P/E (12.1) for companies in the capital markets industry is roughly the same as Get Nice Financial Group’s P/E.

That indicates that the market expects Get Nice Financial Group will perform roughly in line with other companies in its industry. If the company has better than average prospects, then the market might be underestimating it. Checking factors such as the tenure of the board and management could help you form your own view on if that will happen.

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. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.