In This Article:
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll show how you can use Chinney Alliance Group Limited's (HKG:385) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Chinney Alliance Group's P/E ratio is 4.3. That is equivalent to an earnings yield of about 23%.
See our latest analysis for Chinney Alliance Group
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Chinney Alliance Group:
P/E of 4.3 = HK$1.45 ÷ HK$0.34 (Based on the trailing twelve months to June 2019.)
Is A High P/E Ratio Good?
The higher the P/E ratio, the higher the price tag of a business, relative to its trailing 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 Does Chinney Alliance 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. If you look at the image below, you can see Chinney Alliance Group has a lower P/E than the average (10.2) in the construction industry classification.
Chinney Alliance Group's P/E tells us that market participants think it will not fare as well as its peers in the same industry. 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. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
It's great to see that Chinney Alliance Group grew EPS by 24% in the last year. And its annual EPS growth rate over 5 years is 17%. With that performance, you might expect an above average P/E ratio.
Remember: P/E Ratios Don't Consider The Balance Sheet
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.