In This Article:
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll look at Yuexiu Transport Infrastructure Limited's (HKG:1052) P/E ratio and reflect on what it tells us about the company's share price. Yuexiu Transport Infrastructure has a price to earnings ratio of 8.85, based on the last twelve months. That corresponds to an earnings yield of approximately 11%.
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Check out our latest analysis for Yuexiu Transport Infrastructure
How Do You Calculate Yuexiu Transport Infrastructure's P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share (in the reporting currency) ÷ Earnings per Share (EPS)
Or for Yuexiu Transport Infrastructure:
P/E of 8.85 = CN¥5.58 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥0.63 (Based on the year to December 2018.)
Is A High Price-to-Earnings 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
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Most would be impressed by Yuexiu Transport Infrastructure earnings growth of 11% in the last year. And it has bolstered its earnings per share by 14% per year over the last five years. This could arguably justify a relatively high P/E ratio.
How Does Yuexiu Transport Infrastructure's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Yuexiu Transport Infrastructure has a P/E ratio that is roughly in line with the infrastructure industry average (8.8).
Its P/E ratio suggests that Yuexiu Transport Infrastructure shareholders think that in the future it will perform about the same as other companies in its industry classification. The company could surprise by performing better than average, in the future. Further research into factors such asmanagement tenure, could help you form your own view on whether that is likely.