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Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll look at C&D International Investment Group Limited's (HKG:1908) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, C&D International Investment Group has a P/E ratio of 4.37. That means that at current prices, buyers pay HK$4.37 for every HK$1 in trailing yearly profits.
View our latest analysis for C&D International Investment Group
How Do I Calculate A Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for C&D International Investment Group:
P/E of 4.37 = CN¥8.45 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥1.93 (Based on the trailing twelve months to December 2018.)
Is A High Price-to-Earnings Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the 'E' increases, over time. 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.
C&D International Investment Group's 63% EPS improvement over the last year was like bamboo growth after rain; rapid and impressive. The sweetener is that the annual five year growth rate of 64% is also impressive. So I'd be surprised if the P/E ratio was not above average.
Does C&D International Investment Group Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio essentially measures market expectations of a company. We can see in the image below that the average P/E (6.3) for companies in the real estate industry is higher than C&D International Investment Group's P/E.
Its relatively low P/E ratio indicates that C&D International Investment Group 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. You should delve deeper. I like to check if company insiders have been buying or selling.