To the annoyance of some shareholders, Byleasing Holdings (HKG:8525) shares are down a considerable 59% in the last month. Even longer term holders have taken a real hit with the stock declining 20% in the last year.

All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that long term investors have an opportunity when expectations of a company are too low. 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?

We can tell from its P/E ratio of 5.52 that sentiment around Byleasing Holdings isn't particularly high. We can see in the image below that the average P/E (6.2) for companies in the diversified financial industry is higher than Byleasing Holdings's P/E.

Its relatively low P/E ratio indicates that Byleasing Holdings shareholders think it will struggle to do as well as other companies in its industry classification. Many investors like to buy stocks when the market is pessimistic about their prospects. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.

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. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Byleasing Holdings shrunk earnings per share by 29% over the last year.

Remember: P/E Ratios Don't Consider The Balance Sheet

The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. 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.