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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll show how you can use Keck Seng Investments (Hong Kong) Limited’s (HKG:184) P/E ratio to inform your assessment of the investment opportunity. Keck Seng Investments (Hong Kong) has a price to earnings ratio of 9.28, based on the last twelve months. That is equivalent to an earnings yield of about 11%.
View our latest analysis for Keck Seng Investments (Hong Kong)
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 Keck Seng Investments (Hong Kong):
P/E of 9.28 = HK$5.4 ÷ HK$0.58 (Based on the year to June 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. 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
If earnings fall then in the future the ‘E’ will be lower. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others — and that may encourage shareholders to sell.
It’s great to see that Keck Seng Investments (Hong Kong) grew EPS by 18% in the last year. Unfortunately, earnings per share are down 16% a year, over 5 years.
How Does Keck Seng Investments (Hong Kong)’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 Keck Seng Investments (Hong Kong) has a lower P/E than the average (14) in the hospitality industry classification.
This suggests that market participants think Keck Seng Investments (Hong Kong) will underperform other companies in its industry. Since the market seems unimpressed with Keck Seng Investments (Hong Kong), it’s quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don’t Consider The Balance Sheet
Don’t forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.