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Byleasing Holdings (HKG:8525) shares have continued recent momentum with a 104% gain in the last month alone. That brought the twelve month gain to a very sharp 68%.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
See our latest analysis for Byleasing Holdings
Does Byleasing Holdings Have A Relatively High Or Low P/E For Its Industry?
Byleasing Holdings's P/E of 12.78 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (7.6) for companies in the diversified financial industry is lower than Byleasing Holdings's P/E.
Its relatively high P/E ratio indicates that Byleasing Holdings shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. 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
P/E ratios primarily reflect market expectations around earnings growth rates. 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.
Byleasing Holdings shrunk earnings per share by 37% over the last year.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
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. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.
Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.
Is Debt Impacting Byleasing Holdings's P/E?
Byleasing Holdings's net debt equates to 45% of its market capitalization. While it's worth keeping this in mind, it isn't a worry.